Introduction: The Lord Bishop of Carlisle

James William Scobie, Lord Bishop of Carlisle, was introduced and took the oath, supported by the Bishop of Ripon and Leeds and the Bishop of Birmingham, and signed an undertaking to abide by the Code of Conduct.

Employment: Zero-hour Contracts
	 — 
	Question

Tabled by Baroness Royall of Blaisdon
	To ask Her Majesty’s Government how they will deal with the abuse of zero-hour contracts.

Baroness Donaghy: On behalf of my noble friend Lady Royall, I beg leave to ask the Question standing in her name on the Order Paper.

Viscount Younger of Leckie: Zero-hours contracts are not new, but since 2005 there has been an increase in their use. More recently, government has been made aware of anecdotal evidence that has highlighted instances of abuse. As a result, the Business Secretary of State announced that his officials would undertake a fact-finding exercise to explore how these contracts work and what the issues are. This was undertaken over the summer. On 16 September, the Business Secretary said that he would publish a consultation seeking views on zero-hours contracts and on how to address the concerns raised in the summer fact-finding exercise. The consultation will be published in mid-November.

Baroness Donaghy: I thank the Minister for his reply. He has confirmed the very belated inquiry into this subject. Will he confirm that it will cover cases where employees work regular hours but have zero-hours contracts, their pay levels and a code of conduct? How wide will the scope of the inquiry be?

Viscount Younger of Leckie: Certainly, the noble Baroness has hit on a number of the issues that will be covered. They will include exclusivity; a lack of transparency within the contracts; a lack of information, advice and guidance; and a lack of certainty of earnings. However, any response that comes through as a result of the consultation needs to be proportionate and well considered.

Lord Hodgson of Astley Abbotts: My Lords, while I am sure that there have been some abuses of zero-hours contracts, perhaps I may ask my noble friend to keep the matter in perspective. The register of interests of your Lordships’ House reveals that I am the director of a brewery and a pub company. Our pub company staff find most welcome indeed the economic flexibility and freedom that zero-hours contracts give them.

Viscount Younger of Leckie: My noble friend makes a valuable point. Opportunities for zero-hours contracts allow, for example, students to enter the labour market. I have heard about instances of workers who used to work on the Tornado project using their legacy engineering skills in just such a way. They were particularly happy to do that. Also, zero-hours contracts particularly help the partially retired, who can work in a scaled-back manner.

Lord Howarth of Newport: Does the Minister think that zero-hours contracts are reconcilable with the responsibility that employers have in all circumstances to respect the dignity of the people they employ?

Viscount Younger of Leckie: Certainly, the bottom line for zero-hour contracts—this is one thing that the consultation will look at—is how employers and employees enter into them. Although there is nothing wrong per se with the contracts, you get opaqueness where there are differences of opinion or a lack of transparency in the contracts between the employer and the employee.

Lord Razzall: My Lords, perhaps I may follow up on the supplementary question of the noble Lord, Lord Hodgson of Astley Abbotts. I am sure that the Government recognise that zero-hours contracts are absolutely essential in the pub and restaurant business, and often suit young people who want to work only certain hours. Does the Minister accept that this makes it even more important that the Government get the balance right between the use of these contracts and the abuse of the system?

Viscount Younger of Leckie: I certainly accept that. The consultation is designed to be wide-ranging. We do not have a closure date for it because it is important that we go into all the issues surrounding zero-hours contracts, including who is involved in them and the numbers of people. There is definitely opaqueness there; my noble friend makes a good point.

Baroness Morgan of Ely: My Lords, Wales has a higher proportion of people working on low pay than the rest of the UK, including many who are in insecure jobs. About 50,000 of them are on zero-hour contracts. Will the Minister explain how, if these people do not know from one day to the next whether they have work, they are benefiting from the great recovery that we are supposedly seeing at the moment?

Viscount Younger of Leckie: First, I should alert the noble Baroness to the fact that there is a recovery going on. Indeed, the employment rate was 71.7% and
	the unemployment rate was 7.7%, so progress is definitely being made, but there is more work to do. In terms of the contracts in Wales to which the noble Baroness referred, again, this is one of the issues we will be looking at as part of the consultation. It is not a good thing if contracts are entered into with both parties being unhappy with the contract.

Lord Christopher: My Lords, there is an issue that goes beyond that of zero hours. It was revealed today that the Revenue is investigating around 120 care homes and care-worker firms where the contract is not really one of zero hours—although that is technically what they are calling it—but zero minutes. They are not paying the full basic wage or for travelling time. The implication there goes beyond the issue of zero hours, which I think is disgraceful; there are also the possible consequences in care firms if they go out of business.

Viscount Younger of Leckie: The noble Lord raises an important point; we are aware that low pay is an issue for workers in the care sector. HMRC, which enforces the minimum wage on behalf of the Department for Business, Innovation and Skills, has been actively conducting enforcement activity in this area. Some investigations are very much ongoing and HMRC has identified relatively high levels of non-compliance, particularly with the national minimum wage. A full project evaluation is being carried out by HMRC and will be completed later this year.

Lord Stoddart of Swindon: Does the House of Lords employ any people on zero-hour contracts? If so, how many are they and in what grades?

Viscount Younger of Leckie: The noble Lord raises some very specific questions. I can confirm that zero-hours contracts are a legitimate form of employment and they were introduced in both Hansardand the catering departments to replace existing casual contracts, so there is an improvement there. The zero-hours contracts, when compared to the previous contracts, give staff the same employment rights as those enjoyed by full-time staff.

Lord Roberts of Llandudno: My Lords, when the Minister brings his report to the House, will he include those working in Parliament itself, especially catering department workers on zero-hour contracts?

Viscount Younger of Leckie: I believe that I have already given that reassurance and some examples to the House.

Lord Hunt of Kings Heath: My Lords, perhaps we can come back to the issue raised about care workers. It is widely reported that thousands of care workers are employed under zero-based contracts—often, as my noble friend Lord Christopher said, delivering care visits of no more than 15 minutes while not being paid for transport or time costs between visits to
	different care settings. Much of that arises from the commissioning policies of local authorities. Is the Minister as surprised as I was that two days ago, the Government tabled an amendment to the Care Bill which stopped the Care Quality Commission from investigating the commissioning duties of local authorities in relation to care homes?

Viscount Younger of Leckie: There is opaqueness between the zero-hours contracts and the payment of travel time relating to care workers. The noble Lord brings up an important point. I have already said how much importance we attach to the care sector. As the noble Lord will know, the payment for time spent on travelling is complex. I do not wish to go into the Care Bill at this stage.

Schools: Careers Service
	 — 
	Question

Baroness Jones of Whitchurch: To ask Her Majesty’s Government how they address concerns about the schools career service highlighted in the Barnardo’s report Helping the Inbetweeners.

Lord Nash: My Lords, we want all schools to follow the example of the best and provide inspiring careers advice for young people. The new statutory duty is an important step towards this. However, evidence from Barnardo’s and Ofsted’s review of careers guidance confirms that there is considerably more to do to bring all schools up to the standard of the best. On 10 September, the Government announced further support for schools in this regard. Proposals include publishing revised statutory guidance and improving national careers service resources.

Baroness Jones of Whitchurch: My Lords, I thank the Minister very much for that reply. Clearly, the best is regular individual face-to-face sessions with all young people from key stage 3 when they enter school. Unfortunately, that is the very thing that Ofsted and Barnardo’s say is lacking in many schools, particularly for the middle-attaining inbetweeners who are still expected to get their career advice from computers. How much longer will the Government stand by and let this poor practice continue when what is needed is a very simple guarantee of face-to-face careers guidance for all young people who would like it?

Lord Nash: I think that the noble Baroness’s ambitions and objectives for careers guidance are the same as mine. However, I disagree that the gold standard is a face-to-face interview with a careers adviser. The gold standard is what all good schools do, which is to seek to identify their pupils’ passions, interests, aptitudes, strengths and weaknesses at an early stage and to work with them throughout their time at school to provide a direct line of sight and contact with the
	workplace. That is what a good education is all about. A few interviews at the end of your time in school is a poor substitute for that.

Baroness Brinton: My Lords, given that the Ofsted report said that three out of four schools were not working well with the new arrangement, despite a handful of excellent examples, this is a devastating indictment. The Barnardo’s research shows that pupils from disadvantaged backgrounds need that face-to-face quality, independent advice. In the recent Education Act, the new code of practice said that vulnerable pupils need this face-to-face advice. Will the Government tell us whether this is happening and, if they do not have the figures, should they not be asking for them?

Lord Nash: My Lords, the noble Baroness uses the expression “a devastating indictment”. The previous Connexions regime did not work and hardly anyone, from Ofsted to Alan Milburn, had a good word to say about it. That is pretty devastating. There is clear guidance on pupils who will specifically benefit from face-to-face advice—disadvantaged pupils and those with learning difficulties or disabilities. I think that I have made my position clear. What we regard as a really first-class education is what I outlined rather than last-minute careers advice.

Baroness Nye: Since the Government gave sole responsibility to schools for careers advice we have seen eight in 10 schools dramatically cut the careers advice they provide, according to a survey by Careers England. Even the director of the CBI has questioned the laissez-faire approach of this Government, so will the Minister explain why the Government are against benchmarking careers guidance to national standards which can be assessed within Ofsted inspections, as recommended by the Barnardo’s report?

Lord Nash: My Lords, Ofsted inspects careers guidance through the leadership and management strand, and the extent to which the school is offering a broad and balanced curriculum. Schools are also held to account by destination measures.

Lord Cormack: My Lords, in a debate in this House in the summer, my noble friend responded positively to the suggestion that each secondary school would be well served by having a panel of local businessmen and women and professionals to advise on careers. Has he made any progress on that front?

Lord Nash: My noble friend’s example of a careers panel is an excellent example of good practice. I have seen other such examples. I recently visited Stoke Newington school and sixth form college—not an academy—where they follow excellent practice in offering careers advice. They have a speed dating careers day, which is very useful. There is a wide range of good practice that schools can use and a wide range of organisations such as Business in the Community, Business Class and the Education and Employers Taskforce with which schools can engage.

Lord Martin of Springburn: My Lords, when most students go to university, there is a hall of residence available to them and that is quite right and fitting. However, when young people are offered apprenticeships far away from home they have to look out for lodgings or digs in the vicinity of their workplace. Could the noble Lord look at this problem?

Lord Nash: I will undertake to look at this problem.

Lord Wills: My Lords, the Minister will be aware that Barnardo’s has estimated that 65% of the children of prisoners end up in prisons themselves. What specific measures are the Government taking to support this particularly at-risk group in making the difficult transition from education into the workplace?

Lord Nash: I am afraid I cannot answer that question now. I will write to the noble Lord on this very concerning issue. We must break the cycle of the perpetuation of children’s backgrounds, of which this is an example.

Lord Willis of Knaresborough: My Lords, an investigation by the Engineering Employers Federation and SEMTA, looking at careers in science and technology, showed that more than 80% of careers advisers in schools come from an arts and humanities background. How likely is it that students who aspire to careers in science and technology will get good advice from people who have no experience of that at all?

Lord Nash: I agree entirely with my noble friend that we do not expect teachers to be careers experts. That is unrealistic, which is why we expect all schools to engage with their local business and professional communities. I was recently in Leeds and Sheffield, where the Glass Academy has been formed by glass manufacturers specifically to engage with their local schools extremely effectively.

Economic Inequality
	 — 
	Question

Lord Greaves: To ask Her Majesty’s Government what proposals they have to reduce the level of economic inequality.

Lord Newby: My Lords, income inequality in the UK is now at its lowest level since 1986. The Government are committed to ensuring that all families benefit from the return of growth to the economy and maintain that the best route out of poverty and the best way of reducing inequality is for households to move into work.

Lord Greaves: My Lords, last week we had the report of the Social Mobility and Child Poverty Commission, State of the Nation 2013, under the leadership of Mr Alan Milburn and the noble Baroness, Lady Shephard. It concludes that:
	“Britain remains a deeply divided country. Disadvantage still strongly shapes life chances. A balanced economic recovery, between different parts of Britain, is not currently within reach”.
	Do the Government agree with the broad conclusions of the report that, if we want more social mobility, that has to go hand in hand with a more equal society?

Lord Newby: My Lords, the Government agree with the broad conclusions of the report. As the noble Lord says, there are major problems of deep-seated, regional inequalities and imbalances. However, the Government are committed to tackling these, which explains why we have committed more than £2.6 billion to the regional growth fund, why we are committed to High Speed 2 and why apprenticeships, which now stand at 850,000 in the last academic year—some 370,000 more than in the last year of the Labour Government—are taking place largely outside London and the south-east.

Lord Morgan: My Lords, the Minister replied about income inequality. Is not the main thrust of the question about inequality of wealth? That has not really been tackled by any Chancellor since David Lloyd George. Should we not deal, particularly, with the question of inheritance and the way in which taxes on inheritance are systematically emasculated or evaded by rich capitalists?

Lord Newby: My Lords, there has been a very long-term increase in inequalities in wealth. This is largely based on inequality in housing, which is where the vast bulk of personal wealth belongs. In terms of getting a more balanced economy, whatever we do about wealth and inheritance, which has proved very difficult—and proved very difficult for Lloyd George—the key is to get more people into better paid jobs.

Lord Monks: My Lords, does the Minister agree that generally the more equal the society, the better the outcomes in a whole range of economic and social indicators, from health and education through to teenage pregnancy and so on? With that in mind, and the fact that real wages have declined by £1,500 since the general election, what practical steps are the Government taking—for example, by increasing the national minimum wage as a matter of urgency?

Lord Newby: My Lords, as the commission found, there is a growing problem of in-work poverty. That is why my colleague, Vince Cable, asked the Low Pay Commission last month to look at the possibility of raising the minimum wage without damaging overall levels of employment.

Lord Berkeley of Knighton: My Lords, do the Government agree that the recent hike in energy prices is going to increase inequality in our society, and, if so, what do they propose to do about it?

Lord Newby: My Lords, the key is to have a sustainable and secure energy policy for the medium to long term. That is why the Government are investing so much in the energy sector and why the news about the agreement to build a new-generation nuclear power station was important. In the short term, all consumers should see whether they can save money—because many can—by switching their source of energy supply.

The Lord Bishop of Ripon and Leeds: My Lords, bearing in mind the way in which wealthy pensioners, such as many in this House, are protected against the austerity cuts that other welfare recipients face, will the Government consider how to enable us to begin to bear our share of the burden, whether by taxing or means-testing the winter fuel allowance or otherwise?

Lord Newby: My Lords, one of the commission’s recommendations was that intergenerational equity could be improved if pensioners paid a higher share. That has not been the view that the Government have taken. Particularly given the very high levels of pensioner poverty, against which many noble Lords have campaigned over many years, we have taken the view that the real value of pensions should be protected during this period of fiscal consolidation. However, we accept that there may be more to be done. Indeed, for people who receive payments such as the winter fuel allowance, there are now a number of voluntary schemes under which they can make that payment available via charities so that it can be used for people on low incomes.

Lord Davies of Oldham: My Lords, why did the Minister not respond to his Liberal Democrat colleague who asked the initial Question with total honesty by saying that he is a junior member of the junior party in a coalition, of which the majority party has in its DNA the promotion and preservation of inequality?

Lord Newby: My Lords, the biggest task in reducing inequality, as the commission points out, is to get more people into work, and this Government are doing that. For example, the number of NEETs has fallen consecutively over many quarters, the number of people in work increased by 155,000 in the last quarter and the proportion of the population in work is at a record level. We on this side of the House will take no lessons from him about getting people into work and earning good money.

Baroness Farrington of Ribbleton: My Lords, will the Minister undertake to work with his colleagues to ensure that, when we are given figures for employment, they include a breakdown which tells the public how many people are earning a living wage, how many are in part-time work and how many are on zero-hours contracts? HS2 will not help my friends and colleagues from Wales. The Government keep trumpeting that the issue is getting people into employment, but tell that to people for whom getting into employment is getting into poverty.

Lord Newby: My Lords, of the three categories of figures that the noble Baroness referred to, those for part-time work are already available. For zero-hours, however, I think that the figures have been made available, have been challenged and are being looked at. If we want a rebalancing towards the regions, we are not going to achieve that overnight. We need long-term transformational projects, of which High Speed 2 is one. It is vitally important for the long-term well-being of the regions.

Armed Forces: Human Rights Legislation
	 — 
	Question

Lord Craig of Radley: To ask Her Majesty’s Government what steps they are taking to review and clarify the application of human rights legislation to members of the Armed Forces when they are based or engaged in operations overseas.

Baroness Anelay of St Johns: My Lords, the clock has stopped. I say to colleagues who are trying to leave the Chamber that, on this occasion, we shall maintain dignity by remaining in our seats while the Minister responsible for defence makes an announcement about our armed services.

Lord Astor of Hever: My Lords, I am sure that the whole House will wish to join me in offering sincere condolences to the family and friends of Lance Corporal James Brynin, Intelligence Corps, of 14 Signal Regiment (Electronic Warfare), who was killed on operations in Afghanistan recently. My thoughts are also with the wounded, and I pay tribute to the courage and fortitude with which they face their rehabilitation.
	Turning to the Question, although the Government have already expressed their disappointment with recent judgments in this area, both in the domestic courts and at Strasbourg, many aspects of the relevant law continue to be uncertain. In view of the importance of the principles at stake, the Government will defend their position vigorously in the key cases still before the courts.

Lord Craig of Radley: My Lords, why wait? Is there not now sufficient experience of the impact of legal hindsight when passing judgment on the activities of personnel engaged in operations or based overseas? Should not the Secretary of State revive, by order, Crown immunity, as the Crown Proceedings (Armed Forces) Act 1987 allows, to cover warlike operations in any part of the world outside the United Kingdom? Alternatively, will Her Majesty’s Government consider new legislation to define combat immunity, in order to clarify the current position? Could this be incorporated in the Defence Reform Bill now in passage through Parliament?

Lord Astor of Hever: My Lords, I share the noble and gallant Lord’s concerns. He is absolutely right to emphasise the relevance of the 1987 Act. Our Armed Forces should not have to put ECHR considerations ahead of vital operational decisions in the national interest. That is why we are not ruling out any options. An amendment to the Defence Reform Bill would probably be regarded as outside its scope, but we hope that the Court will provide clarification of combat immunity. For that reason we shall defend this litigation with vigour.

Lord Rosser: My Lords, I too offer sincere condolences to the family and friends of Lance Corporal James Brynin. These sombre moments have, fortunately, become less frequent in your Lordships’ House, but this moment is a reminder, first, that the courageous members of our Armed Forces continue to risk their lives on behalf of us all, and, secondly, that on occasions the risk becomes reality, with all the heartbreak that that brings.
	On 25 June in this House the Minister said, in response to a question, that “urgent cross-government discussions” were taking place to consider the options in the light of the 4:3 majority Supreme Court judgment of 19 June on human rights and our Armed Forces. He also said that advice would be provided to members of the Armed Forces “as soon as possible”. What has been the outcome of those urgent cross-government discussions, and what is the thrust of the promised advice, which has presumably now been provided to members of our Armed Forces?

Lord Astor of Hever: My Lords, we continue to be grateful to Her Majesty’s Official Opposition for their support on Afghanistan. I can assure the noble Lord that my department is exercised about this issue and Ministers are working closely on it with the service chiefs. A number of cases are still before the courts and the legal position is not yet clear. We will continue to monitor developments closely, but I can reassure the House that, even when the ECHR does not apply, UK Armed Forces are at all times required to comply with all applicable domestic and international law. Customary international law and UK criminal law explicitly forbid torture and abuse, and our domestic law applies to members of UK forces at all times, wherever in the world they are serving.

Lord Palmer of Childs Hill: My Lords, I add from these Benches our sincere condolences on the loss so eloquently expressed by my noble friend the Minister. In his and the ministry’s view, will the actions of the Supreme Court lead to further substantial claims on the Government? What evidence is there of commanders in the field being inhibited because of the comments that have been made in these human rights cases?

Lord Astor of Hever: My Lords, we are concerned that the Supreme Court judgment creates uncertainties in the law that could well impair the ability of the Armed Forces to make robust and timely decisions which are necessary to our national defence. We intend to defend these combat-related claims rigorously.

Lord West of Spithead: My Lords, does the Minister not think that this is another example of a number of cases where people are looking at combat through the prism of peacetime? We have seen some extraordinary decisions made in coroners’ courts. We have seen some extraordinary things come out about Bloody Sunday, and we are seeing an extraordinary position as regards the issue being discussed today; I agree totally with the noble and gallant Lord, Lord Craig of Radley, on the subject. Is it not important that we should get the message across that combat is
	different? A number of us in this Chamber have been in combat and we know that decisions are made in a matter of minutes, if not seconds. People around you are either dying or are in fear of dying and sometimes information is very scant, whereas those with all of the information are taking hours and hours on a warm and balmy afternoon to come to decisions about our military. When we talk about the military covenant, in the end the most important for our military is to be given the ability and the tools to actually fight and win. All of these things are negating that ability.

Lord Astor of Hever: My Lords, I agree with every word that the noble Lord has said and welcome the opportunity to discuss the issue in much greater detail on 7 November during the debate tabled by my noble friend Lord Faulks.

Grangemouth Refinery
	 — 
	Statement

Baroness Verma: My Lords, with the permission of the House, I should like to repeat in the form of a Statement the Answer to an Urgent Question asked in the other place.
	“I wish to inform the House of the latest situation regarding the disruption at the Grangemouth refinery and petrochemicals complex in Scotland. I recognise the concern of many Members of the House, in particular the active involvement of the honourable Member for Linlithgow and East Falkirk. The Government have and continue to be in regular contact with both sides involved in the dispute. We are working closely with the Scottish Government and this morning I spoke to John Swinney, the Cabinet Secretary for Finance.
	Earlier today, Ineos made a statement confirming the decision of its shareholders to place the Grangemouth petrochemicals plant into liquidation, which puts 800 jobs at risk. The Government are saddened by this move, particularly because of the uncertainty it will bring for the workforce and all those who indirectly owe their livelihood to the Grangemouth plant. The Government do not underestimate the plant’s importance to the local community. While respecting the right of Ineos to make this decision, it is regrettable that both parties have not managed to negotiate a fair and equitable settlement that delivers a viable business model for the plant. Even at this late stage, the Government urge them to continue a dialogue, and we will offer all possible help and support on that. We want this petrochemicals plant to stay open if at all possible, but if redundancies are made, support will be available from the Partnership Action for Continuing Employment, which includes the Scottish Government, Skills Development Scotland, Business Gateway and Jobcentre Plus.
	The owners of the refinery, who are Ineos and PetroChina, have announced their intention to keep their refinery open and their wish to restart full operations as soon as possible. Government stand ready to help with the discussions between the management and the union to ensure that this can happen. The Secretary of State is speaking to both parties today.
	Throughout this disruption, fuel supplies are continuing to be delivered as usual. My department has been working closely with industry and the Scottish Government to put robust contingency plans in place to ensure that supplies of road fuels, aviation fuels and heating oils will continue to be available to Scottish consumers and continue to fuel the Scottish economy.
	I will be giving a briefing at 4.15 pm today in Dover House for Members with Scottish constituencies and other interested honourable Members and noble Lords who wish to discuss the situation in more detail”.

Lord McAvoy: My Lords, with permission I will repeat the response made by the Official Opposition’s spokesperson in the other place.
	“The closure of the petrochemical plant at Grangemouth means that 800 people employed there and more employed as sub-contractors will lose their jobs. Ineos chairman, Jim Ratcliffe, had said at the weekend that if the petrochemical plant closed, it was likely that the refinery would go too.
	There are reports this morning that Grangemouth might have fallen between the cracks, with neither the devolved Scottish Government nor UK Government Ministers getting to grips with the issue.
	John Swinney, the Scottish Finance Minister, claimed yesterday that he was in discussion with potential buyers for Grangemouth. Can the Secretary of State tell the House whether he is aware of these discussions and what involvement he or his Ministers have had?
	The Unite union had committed not to strike, with no preconditions, while negotiations over pay and conditions were undertaken. PetroChina, the 50% shareholder in Ineos’s refinery business, made a statement calling for all parties to get back round the table and reach a consensus. But today, rather than coming back to the negotiating table, Ineos has announced that it will close the profitable petrochemical plant. There were reports on the BBC this morning that management delivered the news with smiles on their faces.
	Does the Secretary of State agree with me that Ineos should have got round the table to negotiate rather than delivering ultimatums? And can he tell the House what discussions he has had with Ineos management and the union in the past 24 hours and what support the Government are providing for those who have lost their jobs today?
	In its report on UK oil refining in July 2013, the Energy and Climate Change Select Committee found a mismatch between refinery supply of petroleum products and demand, but the Government are still yet to respond. Can the Secretary of State be confident that the Grangemouth refinery will stay open? What contingency plans are in place to secure fuel supplies for Scotland, Northern Ireland and the north of England? And given the current shut down and uncertainty over the closure of Grangemouth, will the Secretary of State now commit to undertake the review of UK refining capacity which the right honourable Member for Wealden promised in June 2012 in response to the closure of Coryton refinery?”.

Baroness Verma: My Lords, the noble Lord raises a great number of questions. Of course we recognise that this is an incredibly unsettling time for workers at Grangemouth and for the wider community, but we need to try to work towards getting a resolution and therefore we stand ready to assist both sides to come to the table to discuss matters. We are also ready to engage with any potential purchaser that may make the case for the ongoing commitment to the UK if it were to take over Grangemouth petrochemicals. We are working very closely with the Scottish Government.
	The noble Lord asked about contingency plans. We are working very closely with suppliers and retailers to ensure that Scottish forecourts increase their stock levels well above normal levels as a precaution. We have been working with airports to ensure that they have contingency plans in place to ensure the supply of jet fuel, and with heating oil distributors to encourage them to stock up early. A number of plans are already in place and we are working on them. Ultimately, the best solution would be to get both parties back talking to each other.

Lord Forsyth of Drumlean: My Lords, first, I thank my noble friend for organising the meeting this afternoon. This is a vital national resource of great strategic importance in an area where jobs are in short supply. Will my noble friend encourage my right honourable friend the Prime Minister to knock some heads together and get agreement on the way forward? Quite frankly, the idea of finding a purchaser is a complete red herring. This plant is losing money on a substantial scale and it will be necessary for both sides to give way. It really is important to the United Kingdom as a whole, and to Scotland in particular, that the Government use their highest authority to get a resolution as speedily as possible and that these redundancy notices are withdrawn.

Baroness Verma: My noble friend is absolutely right that it is an incredibly important issue. That is why my starting point is that we need to get both parties back around the table. We in the Government here are doing our level best to ensure that happens and are working very closely with the Scottish Government.

Baroness Liddell of Coatdyke: My Lords, is the Minister aware that a further 141 jobs have been lost today at the BASF plant at Hawkhead Road in Paisley? It is hard to overestimate just how critical the situation now is in Scotland. I echo the request of the noble Lord, Lord Forsyth, for the engagement of the Prime Minister. We need a little more detail about the nature of the assistance that can be given to try to get these redundancy notices withdrawn with a view to saving these jobs, which are critical to the infrastructure of Scotland and to Scotland’s economic future.

Baroness Verma: The noble Baroness raises a very important point. This is not just about one area but affects the whole country. This debate will be watched very closely and I will of course take back the requests of my noble friend and the noble Baroness that this is
	taken to the highest levels to ensure that we get proper engagement. What we want to see of course, at the end of it all, is the two parties around the table to resolve their differences.

Lord Martin of Springburn: The plant is on the east coast of Scotland. I live on the west coast and some of my neighbours and some of my former constituents travel on a daily basis to the plant. The impact therefore goes across the central belt of Scotland. For many reasons, I echo the case that has been put by noble Lords on both sides of the House. It is important to deal with this at prime ministerial level and that is where the negotiation should come from.

Baroness Verma: My Lords, I can only reassure noble Lords that we take this issue incredibly seriously. We are doing our utmost to ensure that there is engagement from both parties and are working very closely with the Scottish Government on this as well. As I have already said, this debate will be watched very closely and I am sure that everyone will take this debate seriously and encourage discussion.

Lord Foulkes of Cumnock: My Lords, does the Minister share my concern that this Government, the Scottish Government and the workforce have been blackmailed by a billionaire sitting on a £130 million yacht in the Mediterranean? Is that not awful? Will the Minister confirm that the UK Government will consider, along with the Scottish Government, all options for keeping this plant open, including bringing it into public ownership?

Baroness Verma: My Lords, we need to be very careful about the language we use and how we progress this debate. It would be wiser for all of us to try to work very carefully and closely with the parties and get them to come together around the table for discussions.

Lord Steel of Aikwood: My Lords, is it not the case that this dispute has been going on for some weeks? Those of us who have been watching it from a distance have been concerned at the lack of high-level intervention to try to get it resolved. There appears to be an intransigent union on one side and a rather distant operator on the other. I simply want to add my voice to those who are saying that we really must try at the highest level to get this sorted out.

Baroness Verma: My Lords, I have noted my noble friend’s comments, as I have noted those of all noble Lords around the Chamber. So that noble Lords are reassured, I will again repeat that we take this matter seriously and we want to get the parties around the table. That means that we all have to work together very closely at every level.

Baroness Smith of Basildon: My Lords, as the noble Baroness will be aware, I raised the issue of refinery capacity in the UK previously, when the highly efficient refinery at Coryton in Essex had to close down. The Government refused even short-term financial support to keep it open, unlike the French and German
	Governments with their refineries. We must not make the same mistake again. How sure and confident is the Minister that the UK has adequate refinery capacity?

Baroness Verma: My Lords, we feel confident that we do have adequate capacity. On the broader point about support for the Grangemouth complex, we are happy to work to support it as long as there is a good business case there. Before we go to that stage, let us do the most important thing and get both parties to start talking to each other.

Energy Bill
	 — 
	Order of Consideration Motion

Moved by Baroness Verma
	That the amendments for the Report stage be marshalled and considered in the following order:
	Clauses 1 to 7, Schedule 1, Clauses 8 to 38, Schedule 2, Clauses 39 to 41, Schedule 3, Clauses 42 to 50, Schedule 4, Clauses 51 and 52, Schedule 5, Clauses 53 to 66, Schedule 6, Clauses 67 to 69, Schedule 7, Clauses 70 to 74, Schedule 8, Clauses 75 to 91, Schedule 9, Clauses 92 to 97, Schedule 10, Clauses 98 to 106, Schedule 11, Clause 107, Schedule 12, Clauses 108 to 120, Schedule 13, Clauses 121 to 135, Schedule 14, Clauses 136 to 147.
	Motion agreed.

Inheritance and Trustees’ Powers Bill [HL]

Inheritance and Trustees’ Powers Bill [HL]

Second Reading

Moved by Lord Ahmad of Wimbledon
	That the Bill be read a second time.
	Bill read a second time and committed to a Special Public Bill Committee.

Alan Turing (Statutory Pardon) Bill [HL]
	 — 
	Order of Commitment Discharged

Moved by Lord Sharkey
	That the order of commitment be discharged

Lord Sharkey: My Lords, I understand that no amendments have been set down to this Bill, and that no noble Lord has indicated a wish a move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.
	Motion agreed.

Financial Services (Banking Reform) Bill

inancial Services (Banking Reform) Bill8th Report from the Delegated Powers Committee10th Report from the Delegated Powers Committee

Committee (3rd Day)

Relevant documents: 8th and 10th Reports from the Delegated Powers Committee.
	Amendment 92
	 Moved by Lord Lawson of Blaby
	92: Before Clause 16, insert the following new Clause—
	“Meetings between regulators and bank auditors
	(1) The FCA and the PRA must make arrangements to meet the auditors of each bank at least twice in each calendar year.
	(2) The FCA and the PRA may conduct meetings under subsection (1) jointly or separately (but each bank’s auditors must be met separately).
	(3) The purpose of each meeting is to discuss matters about which the FCA or the PRA believe that the auditors may have views or information.
	(4) A bank has a duty to ensure that its auditors attend meetings in accordance with this section (and compliance with that duty may be considered for purposes of the exercise of functions under FSMA 2000).”

Lord Lawson of Blaby: My Lords, Amendment 92 is in my name and those of the noble Lords, Lord Turnbull and Lord McFall. Grouped with it is Amendment 104D, which I will also speak to, although it has to be said that these two amendments have nothing whatever to do with each other. I will speak first to one and then to the other.
	If I may be forgiven, I will go back a little bit in time to when I was Chancellor in the 1980s. As a result of what came to light with the collapse of the Johnson Matthey bank, and the total failure of supervision exercised by the Bank of England, which at that time had that responsibility, I became concerned about the quality of banking supervision in this country. I therefore introduced what became the Banking Act 1987 in order to greatly enhance the quality of bank supervision and bank regulation in the United Kingdom. If I may say, it was not helpful that the Labour Government tore that system up in 1997, but that is another story.
	One of the things that concerned me was the lack of any intercourse between bank supervisors and bank auditors. Indeed, it was prevented because the duty of commercial confidentiality in those days meant that bank auditors could not speak to the regulators or the supervisors. That seemed extremely damaging. A dialogue between the auditors and the supervisors is particularly important, not just because the risks are far greater when things go wrong in banking than in the automobile industry or any other industry—as we know to our cost—but because if the auditors of another kind of company are very concerned, they might well qualify the accounts of the company they are auditing.
	Auditors are, for very good reason, extremely reluctant ever to qualify the accounts of a bank—I cannot even remember when it has ever been done—because of course that might lead to a run on the bank and cause a banking collapse, which would have huge repercussions. So it is all the more important that they can talk confidentially to the supervisor and the regulator.
	Among the measures in the Banking Act 1987, I broke down the iron curtain of confidentiality between the auditors and the bank supervisors. I did not make it a statutory duty—which I regret—because at that time the Bank of England did not want it to be. But I wrote into the Act the expectation that there would be—because there should be—this dialogue between the auditors and the supervisors. So if the auditors were troubled about something that was going on at a particular bank and the bank did not seem to be remedying it, they could tip off the supervisor. Equally, if the supervisor had reason to be concerned about something that was happening at a particular bank, they could ask the auditor to take a good look at it.
	That worked to begin with—but it did not work. This is documented: the meetings between the bank auditors and the bank supervisors became less frequent over the years. In the run-up to the great crisis in 2008 there were virtually no meetings at all, and we all know that the auditors were among the dogs that did not bark. They did not alert anybody to the huge problems there were in a considerable number of our major banks.
	When, a few years back, the Economic Affairs Committee of this House looked again at auditing, not simply in the context of the banks but including them, we recommended that this should be put on a statutory basis. There should be a statutory requirement for this dialogue to occur. This was not accepted by the Government, on grounds that I think were totally unconvincing. We repeated this recommendation in the conclusions of the Parliamentary Commission on Banking Standards. We said:
	“We would expect that for the dialogue to be effective, both the PRA and the FCA would need to meet a bank’s external auditor regularly, and more than the minimum of once a year which is specified by the Code of Practice governing the relationship between the external auditor and the supervisor. This should be required by statute, as recommended by the House of Lords Select Committee on Economic Affairs”.
	That was the firm recommendation of the banking commission and I regret that, so far, it has been rejected by the Government.
	The argument that the Government make is that there is a code of practice. Their response states:
	“This means that there is an expectation set out in law, that there will be a regular dialogue between the regulator and auditor”.
	Expectation is not enough—we have been there before. We had the expectation before, following the 1987 Act. To begin with that expectation was fulfilled but increasingly it was not, and we know what disasters arose from that. I therefore ask the Government—there is no difference between us on the necessity of having this continuous, active dialogue much more than once a year; we probably should have it on a quarterly basis—whether there should be a statutory requirement. Given the lamentable history of the period when it was not a statutory requirement, I urge the Government to think again and make it one.
	Amendment 104D concerns the form in which bank accounts are prepared and the requirement—because we felt very strongly that the new accounting system, IFRS, was totally inadequate, certainly so far as banks are concerned; indeed, that proved to be so in the run-up to the crisis—that there should be a requirement
	in law for a second set of accounts. Those should not be prepared on the IFRS basis but in a way that the supervisory and regulatory authorities feel is necessary in order to give them the information they require. They should be for the benefit of the regulators and supervisors and should not be published in the first instance. However, if the PRA felt that it was in the public interest that the second set of accounts be published, it could require them to be published.
	The difficulties with IFRS are huge. Noble Lords may have seen the interesting article in the Accountant by Emile Woolf—one of the best known chartered accountant—who writes from time to time. I commend the whole article: noble Lords might find it beneficial, although they will be glad to know that I will not read it all out. Woolf writes that:
	“The lapse of accounting and auditing rigour that has allowed IFRS compliance to dissemble truth and fairness has brought shame on our profession and begs the question of exactly what is our purpose”.
	That is pretty strong wording, but it is well justified. The true and fair have effectively gone and the importance of prudence has given way to box-ticking. I understand why valuation by mark to market has come in. There were different difficulties with the historical cost basis but the result of mark to market has meant that in many cases, purely fictitious paper profits are in the accounts. Not only does that make the bank look stronger than it really is but, of course, these are then distributed in bonuses or whatever. It is a disaster. And there are other defects. The change in the provisioning requirements is totally inadequate.
	It is probably true that there is a grudging acceptance of that throughout many of the leaders of the accountancy profession. The problem is that IFRS is enshrined in European Union law. Therefore, it cannot be changed without the agreement of all the members of the European Union. They are talking and talking and talking, and they are producing documents on one aspect or another. Goodness knows when they will reach agreement. Goodness knows if they will ever reach agreement.
	The Parliamentary Commission on Banking Standards has said, “Okay, we accept IFRS as it is but for banks there needs to be this second set of accounts for regulatory and supervisory purposes”. What are the Government’s grounds for rejecting this? The Government are saying: Okay, you have made a good point, but,
	“this needs to be balanced against the increased costs imposed by introducing a requirement for an additional parallel set of accounts”.
	Compared with the massive costs of banks going belly up, the cost of having a second set of accounts which helps the regulators and the supervisors to do their job is peanuts—it is piffling. It is absurd to talk about it in the same breath.
	Neither of these amendments is opposed to the Government’s approach to the issue of banking and I hope that the Minister will see fit either to accept these amendments or, if not, to introduce amendments of his own on Report which will achieve precisely this effect.
	As for the reports of the inquiry, and as this is the beginning of the last day of the Committee stage, I draw the Committee’s attention to the extraordinary nature of this Bill. When we received it from the House of Commons it consisted of 35 pages. Assuming
	that the government amendments which have been passed on previous Committee days and the ones that will be debated later on are added—as I am sure they quite rightly will be; I am not going to vote against them—the Bill will be 189 pages. The Bill has increased already between fivefold and sixfold. There will probably be further amendments on Report and it will be even bigger. It is an extraordinary way to legislate. We need time to absorb all this, and I hope that the Minister will be able to persuade the business managers to give us adequate time to do so before we reach Report on this very important Bill.

Lord McFall of Alcluith: My Lords, I support the noble Lord’s amendment enthusiastically because the auditors were the weak link in the financial crisis. In terms of profits, the banks booked expected profits and then found out they were not there. So the question is: where were the auditors in that situation?
	I was chair in 2007 when the Treasury Committee looked at Northern Rock. There were no meetings between the regulators and the auditors. The auditors of Northern Rock received more income from consultancy for Northern Rock than they did from audits. If I remember correctly, the auditors wrote 10 letters on behalf of Northern Rock, from which they gained £800,000. That is £80,000 a letter: not bad for a day’s work. Again, if I remember correctly, there were about seven meetings between the regulators and Northern Rock. At the time the mentality in the Financial Services Authority was the bigger the bank, the bigger the risk; the smaller the bank, the smaller the risk. Of these seven meetings, four were conducted by phone. Three were face-to-face, with no minutes taken. If you were the secretary of your local community council or your golf club and came up with such practice, you probably would not be the secretary at the end of the year. The regulator, however, kept on swanning along. That practice was a terrible practice—the voice of the auditor was missing.
	The Treasury Committee report was clear. We said that within the limits of what they are required to do, perhaps the auditors did an adequate job. However, if they did an adequate job in terms of what they were required to do, the question remains: what is the point of an audit? That question continues to haunt the audit profession and it has not started to answer it.
	The Government say there is talk about a code of practice, but in 2011 in a letter to the Economic Affairs Committee, Andrew Bailey of the Bank of England was very clear that,
	“the working relationship between external auditor and the prudential supervisors had broken down in the period prior to the financial crises”.
	So the code of practice does not work. The aim of this amendment is to ensure that there is a statutory basis so that no one can come along in future and say “That aspect was overlooked”. There has to be a serious duty on individuals to look at that.
	From an accounting and disclosure perspective, RBS, Halifax and Northern Rock went down because of factors such as huge wholesale funding and property
	exposures. It was clear from the accounts two to three years previously exactly what the risks were, but nobody took heed. That is why the voice of the auditors has to be that much stronger. At the time, RBS shareholders approved the ABN AMRO deal by 95% to 5%, but that was just months before it collapsed.
	When he was on the Economic Affairs Committee the noble Lord, Lord Lawson, asked John Connolly of Deloitte a pertinent question about auditing. The answer was that perhaps Deloitte would have had a different interpretation of “going concern” if it had realised that the Government were not standing behind the banks at the time. How flexible and flimsy is this focus on auditing from the auditors themselves?
	There is a long way to go on audit, not just with regard to a statutory basis. There has to be a look at what auditing uncovers and what information it gives. I suggest that the Government look at three key features of an early warning system, having said that the auditors knew what the risks were before. First, there has to be a duty on auditors to raise these issues early with the supervisor. They knew what lay ahead if the reckless approach continued. Secondly, and very importantly, the auditors need to become more professional and sift large numbers of high-impact, low-probability events so that the regulator can understand what the risks are. Remember that the regulator was operating on the basis of business models—the profits and loss accounts of companies—which had nothing to do with the regulator, so they never looked at that. That is why we ended up with such huge scandals as PPI, interest rate swaps and whatever else. Business models are crucial to the regulator, as they should be to the auditors, so it is crucial to sift that large number of high-impact, low-probability events.
	Given the point I made earlier about nobody taking heed, there needs to be an increase in credibility to ensure that all stakeholders pay attention to what auditors are saying. In terms of auditors and auditing and the link between auditors and the regulator, there has to be a less compliance-driven and more comprehensive approach. There has to be an enhanced role for the auditor as an independent expert to check and challenge all the trivial and complex issues that banks present. There has to be clear and unequivocal communication from the auditor to the company, and it is important that the regulator is aware of that information. From the auditors there has to be an insight into the company’s risk management system. More than anything, there has to be a universally consistent interpretation and application of standards. Given that we have to increase the confidence of the stakeholders by auditors, financial reporting needs to ensure that investors understand what is happening in a company.
	The Government’s response to the commission’s report is totally inadequate. They said that they are,
	“not convinced of the need to define the frequency of this dialogue in statute”.
	The Bank of England has also said:
	“The PRA has published a code of practice on the relationship between an external auditor and the supervisor”.
	That code of practice, by the way, was ignored and jettisoned in the past. The FSA, given its culpability in
	Northern Rock, Halifax and the Royal Bank of Scotland, has the cheek to say that it supports an open dialogue with external auditors.
	Andrew Bailey’s letter states quite clearly that the code of practice does not work. The empirical evidence states quite clearly that the auditors and regulators did not do their job in the past. If all we have is an exhortation to the financial community, auditors and regulators, to do things better, we will be back here in a few years. I therefore ask the Minister and the Government to look at this issue very seriously, and if they cannot give us a full answer today, to ensure that when we come back on Report and have had adequate time to look and present our amendments on that, at least we can have a positive way forward.

Lord Flight: My Lords, I strongly support these two amendments and the points made by the noble Lords, Lord Lawson and Lord McFall. I will add only the point that IFRS renders accounts virtually impenetrable, and fund managers have to convert them into a more understandable form of accounting to understand what on earth is going on within the organisation. I have been critical of IFRS for more than 10 years. The point was made to me initially that this was not a matter for Parliament but for the profession. It is of crucial importance to Parliament, because if it leads to things such as the banking mess, the nation at large is responsible. Secondly, as the noble Lord, Lord Lawson, pointed out, not only did it exaggerate profits in good times and create fictitious profits on the back of which excessive bonuses were paid, but it also exaggerates the other way in bad times, and therefore arguably can lead to an underappreciation of a bank’s strength. I had thought that France and Germany had some sympathy with this view and, notwithstanding other criticisms, I had been hopeful that the EU was looking to address this issue. I am disappointed that, to date, nothing seems to have happened.
	I also make the point that, going back 20 years, Switzerland actually put a legal obligation on the auditors to do the compliance regulatory checking. The auditors were then liable if they had not done their job properly. I think it is a pity that Switzerland changed from that practice because I thought that it worked extremely well. I am not necessarily recommending it for this country but it was a novel idea, and the auditors ought to know what is going on within a bank if they have done their duty in auditing that bank properly. Switzerland has since changed its approach. Indeed, it was after it did so that Switzerland, too, encountered problems.
	When the crisis broke in 2007-08, I asked myself: where were the auditors? Since then, candidly, there has been justified criticism of the regulators, but the issue of what the auditors were doing and why, and why bank accounts were so unsatisfactory, has not been adequately examined. I believe that the Treasury Select Committee has looked at this, but I am not sure whether it has done so in any detail. It is still quite an important issue and I believe that this Government should exercise pressure to effect reform of IFRS. In addition to the havoc it caused in the banking industry, it has also been significantly responsible for massive damage to our pension systems by overestimating the
	liabilities, especially when bond interest rates are artificially low. That has led to massive closure of justifiable defined benefit schemes. It really is a problem and it needs addressing.

Lord Barnett: My Lords, I strongly support the amendment moved by the noble Lord, Lord Lawson. I declare what I suppose is a former interest, as many years ago I was a senior partner in an accountancy firm of modest size—I say “modest size” by comparison with the three or four firms that audit banks or, indeed, any of the FTSE 100 companies. That firm became bigger since I retired, because it merged with a fairly large international group, but at the moment it is not one of the likely auditors of any bank, whether small or large.
	The noble Lord who just spoke asked where the auditors were. That question arose constantly, and understandably. If a bank gets into that kind of trouble, what were the auditors doing over the years? Never mind dialogue with the regulators; what about a dialogue with themselves or with the banks? Something serious will have to be done by the Government or by the profession about there being only three or four firms which audit all banks or, as I said, any FTSE 100 company. It is a serious matter and will obviously have to be addressed. It has been broadly spoken about for years, but nothing has ever been done about it.
	Amendments 92 and 104D relate to some extent to leverage, which is what Amendment 93 concerns, and to whether banks have adequate capital to do the job of being a normal bank. This clearly is a serious issue, which nobody has properly addressed. How do we get to the situation where other major banks can be called on to have some kind of competition for who does that auditing job? When a firm knows that it will have that job permanently, the likelihood is that it does not do the job as well as it could or should. That has been happening all the time.
	I hope that the Government will listen very carefully to what the noble Lord, Lord Lawson, my noble friend Lord McFall and others said, and what previous Select Committees said. This is an all-party issue, as the noble Lord, Lord Deighton, knows. I hope that he will be able to tell us that the Government will seriously consider what has been said today. If they cannot accept the amendment because the drafting is not quite as it should be—which I would understand—I hope that they broadly agree with it and will come back on Report with an amendment that does the job. We cannot just leave this; something will need to be done. I hope that the Government will listen very carefully today.

Baroness Noakes: My Lords, I will say a few words, as a director of a bank and a member of an audit committee, to give a current perspective on these issues. We have heard interesting speeches from my noble friend Lord Lawson and from other noble Lords that were not directly relevant to the amendments in this group.
	One of the amendments before us concerns whether there should be a statutory requirement to make arrangements to meet auditors twice a year. As a
	consequence of last year’s Financial Services Act, there is already a requirement on the PRA and the FCA to make arrangements for relationships with auditors, and indeed actuaries. That has led to the revision of the code of practice developed under the FSA into the ones that have recently been produced by the PRA and the FCA.
	The noble Lord, Lord McFall, referred to Andrew Bailey and the previous existence of relationships between auditors and the FSA. It may well have been true that that did not work well in practice. However, I assure noble Lords that in my experience, both the PRA and the FCA are wholly resolved to make the arrangements for working closely with auditors work extremely well. That is the nature of what they have done in producing their codes of practice. If the noble Lord, Lord Lawson, or any other noble Lord looks at the codes of practice, they will see a very different intensity of engagement from any previous code. In particular, for category 1 firms—which, I am sure, are the firms about which noble Lords are concerned—not only are two formal meetings scheduled but the guidance makes it absolutely clear that it is expected that there will be additional meetings and informal contacts with the auditors throughout the process.
	We have to accept that the world has moved on. There is now a statutory underpinning of the arrangements that are made for relationships with auditors. From my perspective, both the new regulators have taken to heart any lessons to be learnt from the past and are very focused on ensuring that the arrangements work well, going forward.

Lord Hollick: My Lords, I support the two amendments in this group. They address real flaws in the current arrangements. The comments of the noble Baroness, Lady Noakes, were interesting on whether the flaws are now covered by the codes of practice. The concern in the committee report to which the noble Lord, Lord Lawson, referred—I was part of that committee—was that there was no active and effective dialogue between the auditors and the regulators. Regulation requires as much light as possible to be shone on what is going on in the organisation being regulated. In part, that is to do with the provision of information and data—of which there are tonnes in banks. At another level, it is very important to give a perspective and a judgment. This goes to the heart of some of the problems.
	First, and bluntly put, the auditors—as has been pointed out—are appointed, paid and retained because they work with the management of the bank. Their duty is to shareholders, of course. However, the reality is exemplified by Barclays, which had the same auditor for, I think, 240 years. It is very important that we underwrite the independence of the auditor. The statutory requirement to talk to regulators helps auditors have the necessary degree of independence so that they can inform the regulators of what they are concerned about.
	The second issue is that of the accounts. As the noble Lord, Lord Flight, made clear, investors have a completely different set of accounts. They put IFRS to one side because it is incomprehensible and meaningless. It is completely pro-cyclical in banking, which is the
	most dangerous thing to be. The fund managers look at their own accounts, but of course if you sit on the board of a bank—as a number of Members of this House do—you see a different set of accounts as well. You see the management accounts about how the bank is trading. You look at the bankbook and try to assess the risks. Before IFRS came along, when times were good it was a practice for prudent bankers to say that some of the loans might turn bad and that it was necessary to put some provisions to one side. IFRS has stopped that practice, although we were told in our committee that IFRS is reconsidering the rules; its rules committee has recognised the shortcomings of IFRS. A Member of this House has also written a very good report which tries to get accounting back from being totally rules-based to being principles-based and asking: “Is this a going concern? Is it a true and fair view of accounts?”.
	The audit firm that signed off Northern Rock to say that it was a going concern—when it was funded entirely by overnight money—made a clear misjudgment, shall we say. The bank’s own management accounts—and indeed the auditor’s own judgment—would have helped the regulator to look at that much more closely. It is therefore important that the Government think again on this. The argument about cost is not a real one; that is a bit of nonsense, to be blunt, because these sorts of accounts are published and provided to board members to review the performance of the organisation.
	As for relying on expectation, we owe it to the taxpayers in this country to have rather clearer rules. Expectations and codes of conduct are all very well, and one would wish to have them clearly set out and published. However, in a matter as serious as this, it is very important that there is a legal requirement to do this. The noble Lord, Lord Lawson, wishes that he had put one into the 1987 Act. The Government owe it to the taxpayers to think again on these issues.

Lord Phillips of Sudbury: My Lords, I am going to build on what has been said by the noble Lords, Lord McFall, Lord Barnett and Lord Hollick. Then I will make one suggestion in respect of Amendment 92, which I support. Comment has been made about the fact that the accountancy profession has got too concentrated for public benefit. It is altogether too cosily placed vis-à-vis the very largest banks and companies. The noble Lord, Lord Hollick, referred to Barclays using the same auditors for more than 100 years; it that is not a recipe for slack auditing, I do not know what is.
	The noble Lord, Lord McFall, noted that many accountancy firms provide both auditing and consultancy services. Sometimes, the non-auditing services are more valuable than the auditing services, which is a crazy situation. It is a pity that the Bill does not address that because if, as auditor, you ought to be saying some things with “rigour”—the word quoted by the noble Lord, Lord Lawson, from an article by Mr Woolf—how can you avoid a deep conflict of interest? I suggest, and experience bears me out, that you cannot bring to the very difficult task of auditing the rigour that is on occasions necessary to bring a bank or a large company to heel and to ensure, as far as any audit can, that some of the disasters we have seen are thereby avoided.
	As I say, I am sorry that we are not addressing that issue in this Bill. Perhaps it is not too late to table such a provision on Report. However, I fear that a great deal is lacking. I think I am right in saying that all the big four accountancy firms have been penalised or fined many millions of pounds in the past few years. I remember that in America, KPMG was fined more than $450 million for running fraudulent tax schemes for years on end. What happens to these firms’ reputation and business? Very little does, as far as I can see. I suggest to my noble friend Lord Lawson and his co-proposers of Amendment 92 that it is not clear beyond peradventure that the bank under consideration should not be present at these statutory meetings. It may seem an obvious common-sense point that you cannot have such a statutory meeting with somebody from the relevant bank being present. However, given the cynicism of our world, we should make that clear. Given that we are at a flexible stage of our consideration of the Bill, if Amendment 92 goes forward, I recommend that that provision be included in it.

Lord Blackwell: My Lords, I do not think anyone can disagree with the arguments put forward by my noble friend Lord Lawson that the regulators should have access to the best available information from the auditors and should be able to request the information relating to the accounts that they want. What I am less clear about from this discussion is whether there is a need for that to be built into this legislation. I should be very grateful to my noble friend the Minister if he would clarify whether there is anything in the current law that prevents regulators doing exactly what these amendments suggest.
	Like my noble friend Lady Noakes, I sit on the board of a bank and on its audit committee. Things have moved on considerably since 2008. It is clear to me that as regards the major banks, the PRA has frequent confidential discussions with the auditors; and those are perfectly proper. It is also clear to me that the PRA can, and does, request information from the relevant bank in any form that it feels it needs to have to perform its duties. Therefore, the question is whether there is anything in the current legislation that would allow an auditor to refuse to meet the PRA or to refuse to provide information on the grounds of commercial confidentiality or conflict. Are those powers extant in existing legislation? Is there anything that allows a bank to withhold financial information if it is requested by the PRA? If those powers are already available, I am less clear what these amendments would add.

Lord Eatwell: My Lords, it is clear from remarks made around the House that noble Lords support the intention of these amendments—that there should be regular dialogue between the regulators and auditors, and that accounts submitted to the regulators should be fit for purpose and provide the relevant information to inform their decision-making. I understand that the contested issue is whether these meetings take place at the moment, and whether there are sufficient codes of practice—or simply what is regarded as normal practice—to enable these meetings to take place. However, I do not think that that is enough. As my noble friend Lord Hollick said, we have a responsibility to the
	taxpayer to ensure that these meetings take place and that the appropriate accounts are provided to the regulators.
	When he replies to this debate, the noble Lord, Lord Deighton, will have to tell us that he can guarantee that these meetings will take place and that accounts will be provided in appropriate form: not simply relying on codes of practice, but on the force of statute.

Lord Deighton: My Lords, these two amendments concern the role of auditing in banks. Many excellent points have been made about the historical challenges and weaknesses and to some of the problems they have created. However, not all of these have specifically addressed the amendments themselves.
	Amendment 92 seeks to strengthen quality engagement between auditors and supervisors. We agree we want to accomplish that and the noble Lord, Lord Eatwell, made the same point. The question is about the most effective way to ensure it is consistently brought about and the difference between us is about how we accomplish that. It may appear attractive to require greater engagement in statute as a guard against complacency in the future, but the clause risks weakening the auditor dialogue and perpetuating the tick-box approach that was found wanting in the last financial crisis. That was one of the most important lessons about regulation we learnt from that crisis. The FSA was widely criticised for measuring adherence to its rules—like how many times you met the auditor—but not coming to an informed judgment about the risks in individual companies and the wider market. That is where the focus of our regulation needs to be.
	I may have been in the private sector too long, but solving a major problem by legislating for a number of meetings has never been the best way to get quality outcomes to serious problems. The FSA was criticised, beforehand, for not engaging enough with the auditors of the banks they supervised. The then statutory requirement for regulators to meet with auditors at least once per year simply became another process and the wider purpose of the meetings was not properly developed. The whole point of the Financial Services Act 2012 was to make sure such failing was addressed and that the regulators follow a judgment-led approach to supervision. This means that all enforcement activities must enhance the regulators’ understanding of the business and the wider market to better enable them to detect risks before problems become serious.
	FSMA now includes a new Section 339A—which deals with the powers to which my noble friend referred—requiring the PRA to have arrangements for sharing information and opinions with auditors of PRA-authorised persons, and to publish a code of practice setting out the way in which it will comply with this obligation. This code of practice, which we have talked about, sets out the principles governing the relationship between the regulators and bank auditors. The code has been laid before Parliament, so provision has already been made, both in and under FSMA, for a regular dialogue between the regulator and the auditor. These requirements mark a change in focus away from
	process—stipulating the number of meetings—to actual outcomes: getting them to do the job properly. This requires regulators to consider serious engagement with auditors and subjects their stated approach to scrutiny so we can see if they are complying with the code of conduct: it does not just fall away. This process is not only more rigorous in the short term, but gives the opportunity for parliamentary scrutiny when the codes of practice are laid before Parliament and provides a check on potential complacency in the future.
	My noble friend Lord Lawson referred to the need to make sure the dialogue was at least quarterly: the PRA code says that it should be. Most noble Lords will not be familiar with the details of the code of practice, but for the major firms—the ones that are perceived to represent the greatest risk to the stability of the financial system—at least three or four meetings per year are encouraged. This is a risk-based approach and the meetings are: at least one routine bilateral meeting between the lead audit partner and the supervisor; one routine trilateral meeting between the lead audit partner, supervisor and the chair of the firm’s audit committee; and one bilateral meeting between the lead audit partner and supervisor in the lead-up to and during the annual audit of accounts.
	Conversely, the amendment’s legal requirement for more regulator meetings with auditors would just follow in the footsteps of the tick-box policy from before the crisis. I am really talking about the smaller, much lower-risk firms, where the guidance is, generally speaking, for at least one meeting a year. Having two meetings a year would simply increase the workload of regulators and take them away from exercising judgment and away from prioritising the most concerning engagements. They would simply be setting up meetings, irrespective of individual circumstances, just because they needed to fulfil a rigid requirement. In our view, such rigidity would weaken engagement and impair the regulators’ ability to adapt their approach as circumstances change.
	Because of all that, the Government remain unconvinced of the need to define the frequency of this dialogue in statute, as the PRA code already specifies this and invites scrutiny. My noble friend Lady Noakes put it very well when she spoke about how the world has moved on and how this now operates.
	In relation to the second amendment, the Government have been clear that the crisis highlighted deficiencies in accounting standards and the fact that there was room for improvement. We all agree with that, and that is what we said in our response to the final banking standards report. The regulators must have the information they need to do the job of safeguarding financial stability, and in some instances that may require disclosure of financial information on a basis different from that used by other audited bodies. In response to the noble Lord, Lord Hollick, the PRA will have access to management accounts, for example.
	In response to the banking standards report, the Government asked the PRA, working with other authorities and the FPC, to undertake a broad-based review of this subject. That review will take account of the nature and scope of information required to create
	a separate set of accounts, the costs and benefits of the initiative, and international requirements. From 2014, the new Capital Requirements Directive IV will require banks to disclose supplementary information which goes beyond the international financial reporting standards. Therefore, it is not yet clear whether we need an additional, separate set of accounts in the light of the extensive prudential and other regulatory reporting requirements that are being imposed through the CRD IV framework.
	However, I can assure noble Lords that, whatever the outcome of this review, the powers that have been given to the regulators under the Financial Services and Markets Act, as amended in 2012—this, again, goes back to my noble friend asking about the existing powers—are already sufficient to permit the regulators to do everything that this amendment gives them the power to do. Their current powers would permit the regulators to make rules requiring banks to prepare additional accounts, to the extent that this is permissible under EU law, to specify the principles that should govern the preparation of such information and to make it public. To the extent that the amendment merely gives the regulators the powers they already have and does not require anything else of them, it is unnecessary. I therefore ask the noble Lord to withdraw the amendment.

Lord Lawson of Blaby: My Lords, I have listened to what the Minister has said. On the second of his two points, I think that he is very close to the position that I and other noble Lords who have spoken are in concerning the IFRS accounts and their defects. He is very much closer than he is on the first one, and he is very close to what I was trying to say. He said that the Government are going to see whether they can get an improvement. He referred to CRD IV, which goes some of the way but is not entirely satisfactory. The only way that we will get accounts in a form that is satisfactory for the regulators and the supervisory requirements is if they ask for that. He is absolutely right that they can do that now. In practice, they could have done it before the 2008 crash, but they did not. That is the problem. Those of us who support the amendments are saying: once bitten, twice shy. It could have been done before; it can be done now. But it was not done before. Therefore there should be a statutory duty, which would make it more likely that it will be done. How can that be objectionable?
	On the first issue the principle is the same: once bitten, twice shy. The idea that this is simply a bit of box-ticking is an insult to the intelligence of this House. As we say in the amendment, the meetings should take place more than once a year—and they will be nothing to do with box-ticking. They will be meetings of the kind that the supervisor and the regulator find most useful. Those people will use their discretion; there is no box to be ticked at all. That idea is—if I may say so, with great respect to my noble friend the Minister—a total absurdity.
	It is perfectly true that under the code of practice and so on, such meetings could take place anyway. But that was also the case before: not only could such meetings have taken place, but the Banking Act 1987, which was then in force—that part was not repealed—
	encouraged them to do so. However, although meetings did take place to begin with, towards the end they did not happen. That is why it makes sense to make it a statutory duty for those meetings to happen. They will not take the form of box-ticking; they will take the form that the regulators and the supervisors find most useful. We leave that to their discretion, but we do not wish to leave to their discretion—this is, in effect, the Government’s position—whether the meetings take place at all. We may wish to discuss this further, but for the present I beg leave to withdraw the amendment.
	Amendment 92 withdrawn.
	Amendment 93
	 Moved by Lord Lawson of Blaby
	93: Before Clause 16, insert the following new Clause—
	“Leverage ratio
	(1) The Treasury must make an order under section 9L of the Bank of England Act 1998 (macro-prudential measures) enabling the Financial Policy Committee to give a direction under section 9H in respect of a leverage ratio for banks.
	(2) The direction above may specify the leverage ratio to be used.
	(3) For the purposes of this section “leverage ratio” has the meaning which the Financial Policy Committee considers that it has in European Union law or procedure from time to time.
	(4) The order under subsection (1) must be made within the period of 6 months beginning with the date on which this Act receives Royal Assent.”

Lord Lawson of Blaby: My Lords, the amendment concerns an issue of critical importance. As was said in the previous debate, the regulatory and supervisory system clearly failed badly. The regulators were not primarily responsible; the bankers were primarily responsible—but the regulatory and supervisory system performed badly, as did the auditors. We are all of us seeking to prevent that sort of problem from occurring again, and part of that endeavour is to have a supervisory regime that requires the banks to be more prudent than they were in the years leading up to the disaster of 2008.
	This subject was considered by the Independent Commission on Banking—the Vickers commission—and one of its conclusions was that basing the regulatory requirement on what are known as risk-weighted assets was unsatisfactory. That is, incidentally, also the considered view of the Bank of England and the PRA. One of the reasons why that is unsatisfactory is that the amount of risk with which one weights particular assets is to a large extent subjective. It is done by the banks, using their own models. The Basel people set a test for a whole lot of different banks. They gave them all the same portfolio of assets and asked the banks to risk-weight them. The difference between the risk weighting of the overall package in one bank was getting on for three times that of another. Indeed, for particular classes of assets, the difference between the risk weighting of the banks was eight times. To a large extent, the banks were able to use whatever risk weighting they chose.
	The Vickers commission, the Bank of England and the banking commission concluded that a more robust and reliable basis for ensuring that banks are prudent would be to lay down a leverage ratio—as our American
	friends call it. It is simpler and more straightforward; it is the ratio between the capital of a bank and the assets on its books. The Basel committee said that the capital should be at least 3%, which is a very low level. That is why it is not surprising that the Vickers commission, the Independent Commission on Banking, said that it should be a little over 4%. The Government rejected that on grounds which I and, I think, the commission found inadequate. It is striking to note that in the United States, looking at the major banks where there is a potential for systemic risk, the ratio varies between 5% and 6%. When this was pointed out at Second Reading, my noble friend the Minister replied that the Americans work it out differently. I looked into this carefully and consulted the Bank of England, and am assured that the difference in practice is trivial.
	This is an important and potentially dangerous area. However, we did not say what we think the leverage ratio should be. What we said was that it should not be set by politicians. It should be set by the Financial Policy Committee of the Bank of England, which would look at this objectively and decide what is necessary. Again, there is a read-across with the United States because the responsibility for setting the leverage ratio there does not lie with the Treasury, but with the Federal Reserve as the supervisory authority. We have said that in this country it should not be for the Treasury or the politicians, who are heavily lobbied by the banks—we all know about that—it should be for the FPC to decide what the ratio should be and then to lay it down. That is why the amendment states simply that the importance of the leverage ratio is such that it should be left to the FPC to decide. I beg to move.

Lord Eatwell: My Lords, this amendment, which I hope will become a new clause in the Bill, is probably the most important in the Bill. It defines whether we are really serious. If we are not serious, we will reject the idea of having a leverage ratio as one of the armaments of the FPC. If we are serious, the Financial Policy Committee must have this tool.
	As the noble Lord, Lord Lawson, has argued, risk-weighted assets have been discredited as a measure of risk within the banking system. It is regrettable that so much legislation both here and in some of the discussions in Basel and in the European Union still use this discredited measure as a means of devising appropriate regulatory measures.
	The leverage ratio is simple, it is clear and it provides a protection to the overall stability of the financial system; it provides protection for a resolution regime; and it provides protection for depositors because, with the regulatory determination of the amount of capital relative to the asset base of the bank, that regulatory determination pursuing those goals will have the effect of reducing an important component of systemic risk. It is not me who makes that argument; the Government did so in the Financial Services Act 2012. In defining systemic risk, that Act defines one of the characteristics of systemic risk as “unsustainable levels of leverage”.
	If the Financial Policy Committee is supposed to be managing systemic risk and a component of systemic risk is unsustainable levels of leverage, why cannot the
	Financial Policy Committee have the tools to do anything about it? At the moment the Government are telling us that they will review whether the FPC should be given this particular tool in 2017. They will review it: we are not even sure that the Financial Policy Committee will receive the ability to manage the leverage ratio in 2017-18.
	By the way, even if it does appear in 2018, the Financial Policy Committee and the Governor of the Bank of England will be given this tool just as Mr Carney gets on the plane back to Canada. We have managed to secure someone who the Government tell us—and I think is generally acknowledged—is a highly skilled central banker and we are not giving him the tools to do the job which he is asked to do in the 2015 legislation. I notice that it was said in the Commons Public Bill Committee that:
	“The Financial Policy Committee cannot be expected to work with one hand tied behind its back”.—[Official Report, Commons, Financial Services (Banking Reform) Bill, 26/3/13; col. 207.]
	Not giving the Financial Policy Committee this particular power ties both its hands behind its back because it is, as I have already said, required to take account of unacceptable levels of leverage and yet it has no tool to do anything about it. The amendment of the noble Lords, Lord Lawson and Lord Turnbull, and of my noble friend Lord McFall, achieves that goal. Surely this is what is necessary if we are serious and are not overwhelmed by the lobbying of the banks.

Lord Turnbull: My Lords, I support the amendment and the account given by the noble Lord, Lord Lawson. I shall add a bit of background to this matter. For probably two decades, up to about 2004, the leverage ratio of the British banking system fluctuated between 20% and 25%. It then rose, reaching a peak in 2008 of somewhere over 40%. The Government’s wish that the number of the leverage ratio should not be greater than three implies that the limit of their ambitions is to get this leverage ratio back to 33%, which is still, by historical standards, a very high ratio.
	A very interesting chart in the Vickers commission report shows how risky people thought assets were. It shows that they fell—this is the assessment that banks put into their own models—between 2004 and 2008. How can anyone believe that 2008 was a year of greater financial stability? I believe the way this came about was as follows. You said in 2004, “I have a portfolio of commercial property and have not lost a penny on it in the past 10 years, so I will give it a weight of X”. You come to 2008, four or five years later, and say, “I have still not lost any money on this, which tells me that this portfolio is not as risky as I thought it was in 2004, so I will give it a lower risk rating”. What is happening all the time when you have an upswing is that, as the upswing gets riper and riper, the risk weights go down and down, until there is a clash. The whole purpose of having a leverage ratio is to provide a backstop to that. One or two people argue that we should run on basic leverage ratios alone but, in my view, both the leverage ratios—unweighted and risk-weighted—should run in tandem. Each provides a check on the other. Relying solely on risk-weighted assets leads you into the farce of banks marking their
	own homework and doing the opposite of what they should be doing by marking things as less likely at precisely the moment in the cycle where they become more likely.
	Another argument that has come up in relation to 3% and 4% is that we must not get out of step with regulation abroad. However, when it comes to risk-weighted assets, the Government have accepted that they want to impose a higher figure—partly because we have more systemically important banks and it is important for a medium-sized economy running a very large banking sector for that sector to be safe. When you say, “Does that not mean that what we thought was a 3% figure should move pari passu”, the answer is, “Oh no, we can’t do that because we will get out of line with what everyone else is doing”. But if you can do it for one of these measures, why can you not do it for the other? I find that argument completely unconvincing.
	There was a view in the commission that higher leverage ratios were a good thing. However, that is not what this amendment is about. Although we thought that, the amendment says that it should be the FPC that makes the judgment. As my noble friend Lord Eatwell has pointed out, the absurdity of hiring this super-duper, global-standard central banker and then not giving him this essential tool until the very point at which his contract ends is beyond belief. It seems an absolutely simple point that the FPC should start this. Elsewhere in the world, other people will be thinking about this and it seems very strange indeed to leave the Bank and the FPC unable to start deploying this measure.
	There is an argument that certain kinds of banks, particularly those with low-risk assets, will find that this 4%, or the leverage ratio, becomes the binding ratio. People making that argument cite, principally, various former building societies. You have to look around and ask where the biggest failure in Britain was. It was former building societies thinking that they had a portfolio that was a good deal safer than it really was. Some of them also got into quite a lot of commercial real estate. Northern Rock, for example, would have been well advised to have followed a leverage ratio of this kind. If it turns out that the supply of mortgages is not adequate—although we are doing lots of other things to promote it—you might want to differentiate between one kind of organisation and another. That should be done by the regulator as a derogation from a world in which we are working with higher leverage ratios than the Government currently envisage.

Lord Blackwell: My Lords, from the discussion, I am once again not clear on whether this needs to be built into the legislation in the way that is being suggested. As the noble Lord, Lord Turnbull, has said, I do not think that anyone would now dispute that it is a useful backstop to have a leverage ratio alongside the risk-weighted assets calculation of capital. However, that is built into CRD 4, and the PRA and FPC have recently demonstrated that they are perfectly capable of anticipating that in terms of the capital guidance that they give to institutions on the capital that they are required to hold.
	There is an argument about whether 3% is the right level or not. I can assure my noble friend Lord Lawson that in the UK at least, whatever banks may have done in the past, they would not get away with applying whatever risk weighting they chose to devise against their own risk assets. All the risk weightings applied in the risk-weighting process are reviewed intensely by the PRA. It has to approve the internal model in order for it to be used to assess your own risk capital, and that process is now extremely well scrutinised by the regulator.
	Nevertheless, there is a good argument that, because the process is bound to be imprecise, having a backstop of an overall leverage ratio makes sense. I think that is generally agreed. However, if you make that leverage ratio too restrictive, you may distort behaviour in a way that you do not desire by encouraging banks and other financial institutions to put too many of their assets into risky assets. If you have only a leverage ratio that does not discriminate by risk, and you are allowed only to hold that amount of assets, then you will stop risk weighting them and simply go for the riskiest assets you can get within that overall leverage ratio. The two have to work together. We should be careful about believing that having too hard a biting overall leverage ratio will reduce banks’ risks as it may work in the other direction.

Lord Lawson of Blaby: The issue here is not whether you should have a leverage ratio; it is not whether it should be statutory or not. The issue is who should determine it: the Chancellor of the Exchequer or the Financial Policy Committee of the Bank of England. That is the issue. Although I speak as a former Chancellor of the Exchequer, I still think it would be better left to the FPC. That is the issue; not whether it should be statutory or whether it should be alone without any consideration of risk-weighted assets. The issue is simply who should determine it.

Lord Blackwell: I thank my noble friend for that clarification, but I was responding to the points that were made by him and other noble Lords in advancing their arguments. If you come down to the question of “Does the PRA need more powers in order to enforce a higher or more restrictive leverage ratio?” then it can, under its existing powers, require capital add-ons to banks if it is not satisfied with the risk weightings. That is the way it would deal with it. It seems a slightly tangential point as to whether it is setting the overall leverage ratio or whether it is setting the capital ratio by other means. I should like to hear the Minister’s response on whether he thinks there is a case for this being built into the legislation.

Lord Hollick: I, too, strongly support this amendment. This is a serious matter. It is not a backstop, or at least I do not see capital as a backstop; I see it as the foundation upon which safer financial institutions can be built. We debated in great detail, quite properly, the regulatory process and all of the regulatory initiatives, but at the end of the day there is nothing that can protect the public and the depositors other than a strong capital foundation.
	In a characteristically robust article in today’s Financial Times—which of course I will replace in the Library—John Kay said:
	“It is hard enough to find people capable of running financial conglomerates—the fading reputation of Jamie Dimon, JPMorgan Chase chief executive, confirms my suspicion that managing these businesses is beyond the capacity of anyone. The search for a cadre of people employed on public-sector salaries to second guess executive decisions is a dream that could not survive even the briefest acquaintance with those who actually perform day-to-day supervisory tasks in regulatory agencies. They tick boxes because that is what they can do, and regulatory structures that are likely to be successful are structures that can be implemented by box tickers”.
	He goes on to say:
	“Financial stability is best promoted by designing a system that is robust and resilient in the face of failure”.
	That is what a strong capital base does.
	It is very important that the Financial Policy Committee has the power to do this. Of course, politicians can always be relied on to make the right decisions but, as we know, when political priorities are to encourage Chinese banks to come to London, for instance, they are allowed to open branches. I am sure that China is a better credit risk than Iceland but it gives you an insight into how decisions can be made by politicians. It is very important that the Financial Policy Committee is given the power to make these decisions, and to make them independently, just as the Bank of England does over interest rates.

Baroness Noakes: My Lords, I agree with much of what my noble friend Lord Blackwell said—in fact, I probably agree with all that my noble friend Lord Blackwell said—but I would like to pick up something that my noble friend Lord Lawson said when he intervened on my noble friend Lord Blackwell, that the issue was who was to decide on the leverage ratio.
	The amendment before us says that the direction, which is the Treasury’s direction,
	“may specify the leverage ratio to be used”.
	The key issue with this amendment is not who potentially decides on the amount of the leverage ratio but the timing of the leverage ratio. People have been clear, and it is going to be a requirement of CRD IV, that there will be a leverage ratio, and the current international timing is to be 1 January 2018. As I understood it, that timing was going to drive the Government’s decision on what leverage ratio to introduce, given that they have the power to include it within the macroprudential toolkit under the legislation that has already been passed. We should not rush into a leverage ratio because there is still much work to be done on understanding how these leverage ratios, which have not been used much recently, actually work in practice.
	My noble friend Lord Lawson also pooh-poohed the idea that the difference in practice between the US and the UK was significant. Some analysis done by the British Bankers’ Association has identified that on any given balance sheet the difference can be 3% under CRD IV and 5.3% under the current US rules. So we potentially have quite a significant difference, and the BBA talks about different leverage ratios as well. We also need to understand the impact of any given level of leverage ratio once the definitions are sorted out.
	Mark Carney, who is chairman of the Financial Stability Board as well as Governor of our own Bank of England, has been clear that this is to be a backstop measure and that it is important to calibrate it so that the risk-weighted asset calculation of capital bites before the backstop method. Unless we are very clear when we introduce the leverage ratio about what the impacts will be, we potentially lay ourselves open to the unintended consequences of positively driving the capital requirements of the banks or, more likely, their lending capacity.
	It is important that we let the current timetable for the development of the leverage ratio proceed and let the calculations be done properly. Banks are already disclosing leverage ratios to the regulators and will be disclosing considerably more information as time goes on, so there can be much more of a public debate about the impact of different leverage ratios on banks and other financial institutions.

Lord McFall of Alcluith: I support the amendment moved by the noble Lord, Lawson, which stands in my name as well. As the noble Lord said, the amendment is, quite simply, about who is doing it. Whatever they do at some future stage, we will let them get on with it, because it is about authority. There are two issues here: learning the lesson, and the authority.
	On learning the lesson, I noted the comments of Adair Turner, former chairman of the FSA, when he said:
	“We allowed the banking system to run with much too high levels of leverage, inadequate levels of capital, and we ignored the development of leverage in the financial system … That was a huge mistake”.
	I had never gone back to basics and asked, “Why do we allow banks to run with 30, 40, 50 times leverage?” Neither had anyone else, funnily enough; so it is about time that somebody asks that question and keeps it in their mind on a daily basis. My point is that politicians—Chancellors, Prime Ministers or whoever—will not keep that in their mind on a daily basis. We learnt that from the financial crisis before. If we set up a new organisation we should give it the authority. I noted the comments made by Lawrence Tomlinson, who was brought in to BIS recently as an “entrepreneur in residence”. He questioned why the British Bankers’ Association needed,
	“60 people working full-time lobbying”,
	when the Government owned majority stakes in two of the banks, Lloyds and the Royal Bank of Scotland. As he said:
	“We already own the banks. Why are Lloyds and RBS paying the BBA to lobby us? They can just get lost! … It’s amazing we let RBS spend tens of millions advertising its services with 80% of our money”.
	I mention that because the banking sector is the best sector in the country for lobbying. The banking sector, unlike any others, gets direct access to No. 10 and No. 11 Downing Street. That happened with the previous Government and it is happening with this one. If you do not allow the proper authority—the FPC—to have this leverage ratio, you are weakening its authority in an instant. I suggest that the institutional memory of a Chancellor or a Prime Minister is much less than the institutional memory of the Financial Policy Committee.
	In terms of the leverage requirements, we have had the Vickers commission, the Parliamentary Commission on Banking Standards, and the interim Financial Policy Committee asking for that leverage to be handed over. The Government have refused. If the Government do not want to be accused of playing politics, it is important that that is put to the Financial Policy Committee.
	Let us look at leverage even today. I looked at Barclays, which has been,
	“the poster child for excess leverage. Its balance sheet is roughly the size of the UK’s GDP. It funds 1.5 trillion pounds of risk-taking with 97.5 per cent debt and 2.5 per cent loss-absorbing equity … The average hedge fund trades with less than 3 times leverage … Barclays has chosen to operate with 45 times leverage … So Barclays deploys gearing 15 times that of most hedge funds. If the bank’s assets eroded in value by a mere 1.5 per cent, it would be 100 times leveraged. How confidence inspiring is that?”.
	If we do not allow the FPC to look at these issues on a daily basis, when No. 10 and No. 11 Downing Street will not be looking at them, we will find ourselves in trouble in the future. As mentioned by the noble Baroness, Lady Noakes, Dr Carney said that it is,
	“essential to have a leverage ratio as a backstop to a risk-based capital regime”.
	We are saying that, if we have appointed Dr Carney with all the thrills and frills of a Chancellor’s appointment, we should give him that authority so that he can get on with the job straightaway and we can keep it away from the hands of the politicians.

Lord Flight: My Lords, as the noble Lord, Lord Eatwell, pointed out, this is crucially important territory. However, I am not certain that the amendment gives the right answer.
	I recollect that when I was studying economics at Cambridge 40 something years ago, a capital base of 8% and a gearing ratio of 12.5% was viewed as the prudent formula for a bank. Things have changed a great deal since then. Who was it that allowed banking ratios to get to such ludicrously low levels in this country? It was the regulator. Although we have a change of regulator organisation, there are still, to some extent, the same people and I am not sure that I necessarily trust the regulator in its new name as being sound in overseeing such things.
	Look what has happened, I repeat, in the past 10 or 15 years. I think it was the noble Lord, Lord Lawson, who made the point that risk-weighted asset formulae are somewhat discredited. Again I agree and, having had some recent experience of it, I have little confidence going forward.
	I also note in terms of ratios permitted that the regulator for some extraordinary reason—at least until the recent present—had ridiculous differences between the capital ratios required for large, too-big-to-fail banks and smaller and new banks. The ratio for mortgage lending was something like 20 times as much for a small bank as for a large bank. So, again, how come the regulator allowed crackpot different capital ratio requirements to creep in in a way that was thoroughly anti-competitive?
	I am not sure that the Treasury may not be the safer party to ultimately have the power to determine capital ratios. As has been pointed out, the amendment states:
	“The direction above may specify the leverage ratio to be used”.
	The direction is given by the Treasury and so the amendment ultimately gives the last-call power to the Treasury and not to the PRA.
	So where are we? I do not think the issue is resolved. It certainly needs addressing.

Viscount Trenchard: My Lords, I agree with much of what my noble friend Lord Flight has said. I also agree with a great deal or all of what my noble friends Lord Blackwell and Lady Noakes have said. I was also impressed by the way in which the noble Lord, Lord Turnbull, stated that he believed that the straightforward, unweighted leverage ratios should operate in tandem with a risk-weighted ratio.
	I noticed that noble Lords opposite smiled when my noble friend Lord Blackwell pointed out that if the absolute ratio bites first and becomes effectively a frontstop rather than a backstop, it will lead banks to concentrate more heavily on risky assets, on lending on assets which they think will give them higher returns. I am convinced that that is correct. It is therefore important that the absolute ratio should be a backstop rather than a frontstop.
	I am confused by the difference in responsibility between the FPC and the PRA. The amendment suggests that the Treasury should enable the FPC of the Bank of England to determine what the leverage ratio should be. However, as noble Lords have pointed out, the FSA had already become more involved in interfering with and providing advice, exercising influence over banks’ lending policies and questioning their formula and the basis on which they applied certain leverage to certain categories of asset class.
	I am not sure where the writ of the FPC stops and where that of the PRA starts. I know that they are both part of the Bank of England and this is confusing. I would welcome clarification from the Minister.

Lord Brennan: My Lords, Mr Andrew Tyrie, the chairman of the Parliamentary Commission on Banking Standards, described leverage ratio as,
	“the single most important tool to deliver a safer and more secure banking system”.
	In their reply last July, the Government accepted this importance. Indeed at paragraph 5.50, they plainly stated that in the future the FPC should determine the ratio, provided that it was not allowed to fall below the international standards reflected in Basel III. However, at paragraph 5.51, that commitment having been repeated, it is then said that it is,
	“subject to a review in 2017”.
	The question therefore arises, if the Government are committed in principle to the FPC determining the ratio, what in this review in 2017 might affect that principle? Questions of amount or the approach to ratio in the light of Basel III go to the process rather than the principle of who determines the ratio. I presume that over the next four years, the Treasury will determine the leverage ratio and will place such requirements about it as it thinks fit on the banking industry.
	At page 68 of the response, the Minister will recall that under the heading “leverage ratio”, it is stated that the Treasury is presently reviewing with the FPC the balance between backstop and frontstop considerations. The intention is to publish the results before the end of the year. Given the six weeks or so of parliamentary time that we have left until Christmas and assuming that Report is, for example, in December, will the Minister undertake to ensure that that review is published before Report? It will affect the debate, should it recur on Report, on the question of who makes the decision. The key point, however, is: why 2017, if the principle is accepted now?

Lord Deighton: My Lords, I welcome the engagement of noble Lords on this critical issue of the leverage ratio and the FPC’s toolkit. Everybody agrees the importance of making sure that our financial institutions are appropriately capitalised. There is no dispute about that and the lessons we should have learnt from the financial crisis. The real question—and again my noble friend Lady Noakes hit the nail on the head—is about the journey we take to get there, how it integrates with what is going on in global standards, and what powers the FPC and the regulators already have to ensure that we are in the right place in the mean time. I think that also comes back to the points made by the noble Lord, Lord Brennan.
	I shall try to give some context, particularly for those who are not so familiar with all the aspects. With each of these amendments, I ask myself what the point of substance is between the amendment and the Government’s position and whether I can reconcile the two with the existing actions we are taking. In this case I have been able to comfort myself that adequate protections are absolutely in place, given the objectives of this amendment.
	The FPC has two main sets of powers at its disposal. The first is a power to make recommendations. This includes recommendations to both the PRA and the FCA. They can be made on a “comply or explain” basis. The second set of powers, which we are talking about here, is to give directions to regulators to adjust specific macroprudential tools. Amendment 93 proposes that the Government give the FPC direction powers to implement a minimum leverage ratio in the UK. Before explaining why the amendment is not necessary or desirable, let me explain the international and domestic context, beginning with the international.
	In order to address recognised problems with the system of risk-weighted capital requirements—which we have all talked about and acknowledged—the Basel III accord recommends a complementary binding minimum leverage ratio. Again, we have all agreed that the right way ahead is for the two to work together, so there is no dispute about that. That standard comes into force in 2018, following a final calibration of the leverage ratio in the first half of 2017 so that we get it right. Separately, at the European level the European Banking Authority will undertake a review of the leverage ratio with a view to the European Commission introducing legislation in 2017. The Government agree, and have consistently argued, that banks must be subject to the binding minimum leverage ratio requirement, which supplements the risk-weighted capital
	requirements as set out by the Basel III accord. Therefore the Government fully anticipate the development of internationally agreed minimum standards of leverage.
	The Government take the view—and we believe that the regulators agree—that the optimal approach to creating a lasting binding minimum standard is to work towards international agreement and its implementation through legislation. As Mark Carney wrote in the Financial Times on 9 September:
	“Yielding to calls for unilateral action to protect domestic systems would risk fragmenting the global system, slowing global growth and job creation”.
	Once that minimum is agreed domestically, the Government propose—and this directly addresses the point made by the noble Lord, Lord Eatwell—to furnish the FPC with a specific macroprudential tool to vary the leverage ratio, through time, obviously subject to it not falling below the minimum.
	However, the question raised by the amendment is: what powers do the regulators have to take action on leverage between now and 2018 in advance of the introduction of that internationally agreed binding minimum requirement through European legislation? Let me reassure noble Lords that the regulators already have extensive powers to address the issues raised by this amendment. The FPC has broad powers to make recommendations to the regulators, on a “comply or explain” basis, including on leverage. The PRA has all the powers necessary—which we have talked about—under Section 55M of the Financial Services and Markets Act 2000 to require individual firms to take specified actions, including on leverage. Under Section 137G of FiSMA it may make rules in pursuance of its general functions, including rules on leverage ratios.
	The killer fact, if I may call it that, is that on 20 June—interestingly, one day after the publication of the PCBS report containing this recommendation—the PRA announced that it would require eight major UK banks to meet a tougher leverage ratio than that prospectively required by Basel III. They have already done that. That action followed a March 2013 recommendation from the interim FPC to the PRA to consider applying higher capital requirements to any major UK bank or building society with concentrated exposures to vulnerable assets, or where banks were highly leveraged relating to trading activities. Put simply, the regulators already have the powers to do what the noble Lord appears to be suggesting in advance of international agreement.

Lord Eatwell: I am intrigued by that argument. The noble Lord started off with a powerful argument for the necessity of a leverage ratio that is allied with risk-weighted assets and other measures. He is now saying that we do not need it because it is all there already. Why, then, are we even bothering to think about introducing it in 2017 or 2018? As he said, we have all the powers already. He is absolutely contradicting himself in a single speech. Will he also address the fact that the Bank of England’s response today to the banking commission’s final report states that the FPC will publish its assessment of the appropriate level of the leverage ratio by the end of this year? When the FPC publishes that assessment, what will the regulators and the Treasury do about it?

Lord Deighton: There was nothing contradictory in what I said, but I will clarify it. For the longer term, we absolutely agree that we need an internationally consistent standard that will work with a minimum leverage ratio. In the mean time, before we are able to employ that in a way that is consistent with how those rules work out, we have the powers individually to make sure that leverage ratios exist which protect the system. I do not think that there is anything contradictory about that. It simply shows that in the short term we have the capacity to protect the financial system, and that is exactly what the regulators have done. There is nothing contradictory in that at all. The regulators have the powers to do what they need to do and will continue to have those powers after international agreement has been reached, at which point we will integrate them through the power that we will give the FPC to set the varying leverage ratio through time.
	I will say, to give noble Lords the international context, that international agreement is on its way. It is in this context that the Government’s commitment to providing the FPC with this additional tool in its toolkit should be understood. Once the baseline minimum level has been set, the Government have made clear their intention to give the FPC an express power of direction to vary through time the baseline leverage requirement for deposit takers and investment firms, subject to it never being below the requirement, as you would expect, determined by Basel III. The precise design of the tool will therefore depend on the provisions of the relevant European legislation. This is a mechanical reserve to ensure that they fit together effectively. It would not make much sense to add this macroprudential tool to the toolkit until the baseline has been set. Indeed, as the FPC noted at its September meeting in response to a recommendation directed to it by the PCBS,
	“a full assessment of the appropriate leverage ratio will depend on the definition of leverage agreed internationally”.
	While work on the international standards is under development, in addition to the powers described the FPC will also have specific powers available to tackle systemic risk stemming from, for example, excessive leverage or any identified issues with risk weights on one or more classes of assets. In particular, the Government have already agreed that the FPC should be made responsible for policy decisions on the countercyclical capital buffer, which I think was a point raised strongly before. That will be in the hands of the FPC. It will also be given a power of direction over sectoral capital requirements. Those would be deployed if concerns of bubbles in certain asset classes took place—for example, in commercial property. The statutory Financial Policy Committee gained its powers over sectoral capital requirements on 1 April 2013, so that is already in place. For the reasons I have given, I call on my noble friend to withdraw this amendment.

Lord Eatwell: My Lords, will the Minister answer the question I asked about the statement that the Bank of England has made today that the Financial Policy Committee will publish its assessment of the appropriate level of the leverage ratio by the end of this year? When it publishes that assessment, who is then going to act and what are they going to do?

Lord Deighton: I apologise to the noble Lord. I was so excited about the first question that I forgot about the second one. It is consistent with what I have already said that the FPC intends to address this recommendation in that timescale, but a full assessment will depend on the definition of leverage agreed internationally, so it all rather depends. In terms of who is going to implement it, as I said, the regulators already have the power to do so. In June this year, they changed the ratios on our key eight institutions to protect them in the mean time, so they have these powers and they have exercised them. I think that is a killer fact.

Lord Lawson of Blaby: My Lords, in some ways this has been a rather puzzling debate. I warmly endorse what the noble Lord, Lord Eatwell, said. This is one of the most important—if not the most important—issue that we have to discuss in the course of this extremely long Bill. For that reason alone, I think it likely that we will wish to come back to it at Report. Meanwhile, I am encouraged to some extent by what my noble friend the Minister said. However, he seemed to be saying at least two completely different things, if not three. One was that we would have to have the leverage ratio—we are all in agreement that we have to have a leverage ratio—that was internationally agreed. Then he said that we would also have discretion, with the FPC, to decide the leverage ratio, and therefore that there was no need for the amendment because the provision was already there.
	First, I am not convinced that it is already there. I shall read very carefully what the Minister said. When my right honourable friend the Chancellor responded to the recommendation of the Parliamentary Commission on Banking Standards, he said nothing of the sort. Nor did he say whether he disagreed with it. He said the first part of what my noble friend said: namely, that we have to accept the international standard.
	There are only two major global financial centres: New York and London. It is important that we do what is right for our financial centre—and the United States takes the same view. We should not rely on international agreements. Too often it is the lowest common dominator that is agreed. The United States is going its own way, particularly with large banks. It realises that it is a major global financial centre and that New York is so important to the American economy that they have to get it right.
	In the United Kingdom, the banking and financial sector is even more important to the British economy. In relative terms, it is five times as important to our economy as the American banking and financial sector is to theirs. Therefore, it is all the more important, if we are to have a strong and successful financial centre and a strong and successful economy in this country, to do what is right.
	It is quite clear that that means that we should have a leverage ratio that may be the same as what is agreed internationally—if it is agreed internationally—but may well be a more prudent one. It certainly would not be a less prudent one, but it may be in the interests of the City of London and the British economy that it should be more prudent.
	The amendment states that the decision should be taken by the Financial Policy Committee of the Bank of England. In a sense, my noble friend agreed with that when he said that the duty was already there and that we had given it to the committee. If that is so, it is good news. However, I suspect that it is not entirely the case. Therefore, it is very likely—in fact, more than likely—that we will come back to this very important issue on Report. In the mean time, I beg leave to withdraw the amendment.
	Amendment 93 withdrawn.
	Amendment 94
	 Moved by Lord Lawson of Blaby
	94: Before Clause 16, insert the following new Clause—
	“Proprietary trading
	(1) The PRA and the FCA must carry out a review of proprietary trading by banks.
	(2) The review must be completed before the end of the period of 3 years beginning with the day on which this Act is passed.
	(3) The PRA and the FCA must give the Treasury a report of the review.
	(4) The report must include—
	(a) an analysis of any action taken by the PRA and the FCA to monitor whether and to what extent banks engage in proprietary trading and any action taken by the PRA or the FCA to discourage banks from doing so;
	(b) an account of any difficulties encountered by the PRA or the FCA in taking that action and an assessment of its efficacy;
	(c) an account of any requirement imposed on banks which the PRA or the FCA consider may be engaging in proprietary trading to publish a statement of the banks’ exposure to risk in their trading operations and of the controls applied to limit that risk;
	(d) an assessment of the impact of the ring-fencing rules on proprietary trading by banks;
	(e) an assessment, drawing on experience in countries other than the United Kingdom, of the feasibility of prohibiting banks from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so (having regard, in particular, to any difficulties of definition); and
	(f) a comprehensive analysis of the advantages and disadvantages of prohibiting banks from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so.
	(5) The Treasury must lay a copy of the report before Parliament.
	(6) The PRA and the FCA must publish the report in such manner as they think fit.
	(7) The Treasury must, following receipt of the report, make arrangements for the carrying out of an independent review to consider the case for the taking of action in relation to proprietary trading by banks.
	(8) The appointment by the Treasury of persons to carry out the review requires the consent of the Treasury Committee of the House of Commons.
	(9) The reference in subsection (8) to the Treasury Committee of the House of Commons—
	(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and
	(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;
	and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.
	(10) The persons appointed to carry out the review must give the Treasury a report of the review once it has been concluded.
	(11) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.
	(12) In this section—
	(a) “proprietary trading”, in relation to a bank, means trading with funds on markets on the bank’s own account (whether or not in connection with business with the bank’s customers),
	(b) “ring-fencing rules” has the meaning given by section 417 of FSMA 2000.”

Lord Lawson of Blaby: My Lords, this amendment is in my name and those of the noble Lords, Lord Turnbull and Lord McFall. It concerns proprietary trading, which gave the banking commission so much concern that we produced a report entirely devoted to the subject.
	Proprietary trading is speculative activity conducted by an institution entirely for its own benefit, where no clients are involved at all. It uses its own financial resources to conduct the speculative activity, which can be very profitable. I have no argument with it taking place, but I have always believed that it is the sort of thing that hedge funds should be doing—and good luck to them. It is not something that banks should be doing.
	There are two main reasons for this. One is that it can be exceedingly risky—and we know that there is enough risk in the system without that. Since the activity can be perfectly well done—and in a free market, should be done—by other institutions, namely the hedge funds, that is fine.
	The other reason that it is dangerous for banks to do this is the issue of culture. When the Parliamentary Commission on Banking Standards was set up, one thing that we were charged to do was to look at the issue of banking culture, because it was clear that it had gone radically wrong. Two aspects of banking culture in particular are relevant here. One is prudence. It always used to be the case—and it should now be the case—that this is an essential part of the culture of any bank. People put their deposits in banks thinking that it is a safe thing to do because bankers are prudent. The other aspect of the culture is service to clients. Of course, with proprietary trading, by definition there is no client; there is no service to clients at all. It is pure speculation on the financial markets, and on the bank’s own books, without any clients being involved.
	That is why my old friend Paul Volcker—whom I have known for many years; he was chairman of the Fed when I first became Chancellor, and I had a lot to do with him—lobbied the American Government to introduce what was called the Volcker rule, which forbids American banks from conducting proprietary trading. He did this for the same reasons that I outlined. However, we did not go that far.
	Incidentally, it is interesting that proprietary trading was rife in British banking before the crash. As much as 30% of the business of some banks was proprietary trading. Now it has almost completely disappeared, in the aftermath of the crash. The banks are saying, “Why are you bothered about proprietary trading? We don't do it any more”. That is true—they do not. But they will. They will come back, as they did before. When they feel that they have got over the aftermath
	of the disaster, and the blood is coursing rather faster through their veins, they will take these risks and do it all over again.
	What we have said is that this is a serious issue that needs to be addressed, and that in three years’ time there should be a serious review of this, which will take into account what is happening in the banking world and will see how the Americans have got on with banning proprietary trading for banks. I am not totally optimistic, because the Americans have a crazy legislative system in which, once a piece of legislation has been introduced, the legislators festoon it like a Christmas tree with all sorts of baubles of this, that and the other. The simple rule that Paul Volcker wanted has been encrusted with page after page of appalling legislation, which he regrets; he makes no bones about that. I am quite sure that we in this country, with our much superior system of government, would not do that.
	Nevertheless, we will be able to learn something from the experience of the United States. We will learn from the experience of what happens over the next three years, and I strongly hope—again, I cannot see any objection—that the Government will accept the amendment, which calls for a review to be held in three years’ time, and, in the light of that, for the Government to decide whether we should have a Volcker rule in this country and whether we should ban banks, although certainly not hedge funds, from engaging in proprietary trading.

Lord Eatwell: My Lords, I support the noble Lord, LordLawson, in this amendment. It seems a modest amendment, calling for a review in three years’ time when the appropriate information from the United States will be available. It will be valuable to have this clause in the legislation to ensure that that review takes place, because it is so easy—given the exigencies of the moment—for major issues, which were recognised as major in the past, to be neglected because of day-to-day pressures. Therefore, having done all our work on banking in the Bill, if we set this process in motion so that the review happens, we will be performing a valuable service.

Lord Phillips of Sudbury: My Lords, I, too, support the amendment. I moved Amendment 91B at the close of our second day in Committee, which overlapped to a considerable extent with this amendment. In my amendment, I also talked about looking at the cultural as well as economic effects of this mass of gambling, as it is, within the financial markets. I hope that the Government will smile upon this; it may be that if it comes back on Report I will try to amalgamate my amendment and this one.

Lord Higgins: My Lords, I also support my noble friend’s amendment, but with some qualifications and a request for some clarification. The amendment simply refers to “proprietary trading by banks”; that does not distinguish between one part of a ring-fenced bank and another. The arguments on this issue are so clear that we should take a perfectly clear view that there ought to be no proprietary trading whatever by any ring-fenced bank.
	There is also no real need to wait three years for such an inquiry. My noble friend referred to the Volcker rule in America; not all of us in this Chamber have Paul Volcker as a personal friend, but I have great respect for him. He is absolutely right that this should not be carrying on in the United States. Although it may be that there has been a decrease for the moment, over a period of three years the situation might change somewhat. Therefore, we could take a clearer view on this between now and Report than is set out in the amendment. As my noble friend has pointed out, this is effectively the banks’ carrying out risky trading on their own behalf—in the past, not infrequently, it was risky trading on their own behalf with clients’ money—and this, again, is a crucial point. Perhaps we should clarify that aspect of the matter, but I have not the slightest doubt that this is a move in the right direction and I hope that we can make rapid progress on it.

Lord Turnbull: I reassure the noble Lord, Lord Higgins, that it is certainly not intended, while this activity might remain within a banking group, that it should be done, under the plan, by a ring-fenced bank. One of the reasons why we took the view that we should wait and see is that the dividing line between a proprietary trade and a trade on behalf of a customer is not straightforward, which is why it is very difficult in the US. For example, if I lend the noble Lord money he may seek some kind of hedge which I would provide. That might mean that my position as the bank is no longer what I really want it to be. As a bank, I would look around to see what my colleagues have done during the course of the day, and we would then add up all the positions that we have taken. We may well find that that position is not where we really want to be, so on the following day the bank goes out and undertakes a trade which gets it back to the degree of hedged position that it wants. Was that a proprietary trade or was it a trade that was a consequence of serving a customer? That is why this is actually very difficult and why we are wise to wait and see whether workable definitions could be found of what constitutes real proprietary trading and of what constitutes trading in response to a customer. This measured amendment enables us to do precisely that.

Lord Deighton: My Lords, the ICB considered in detail the case for a ban on proprietary trading in the UK, but decided in favour of ring-fencing. The PCBS heard evidence from a wide range of sources that prop trading does not appear to play a large role in the UK at the moment—as my noble friend Lord Lawson pointed out—nor did it play a significant role in the financial crisis. The noble Lord, Lord Turnbull, has already addressed the question of my noble friend Lord Higgins, but it should of course be noted that the ring-fenced banks will be banned from proprietary trading as well as from market-making and other forms of trading activity that would expose them to risks from global financial markets. Therefore, from a prudential perspective, much of the risk posed by prop trading can be addressed by a suitably robust ring-fence which is, of course, the thrust of our legislation. This was the point made by the PRA in response to questions from the PCBS.
	It is also worth noting that the evidence heard by the PCBS also suggests that prop trading is not necessarily the sole avenue for the cultural contamination of banks. For example, the PCBS highlighted in its excellent report the serious failings in culture and standards at HBOS, a bank which did not engage in any prop trading at all. Indeed, it is perfectly possible to run an integrated securities business with full integrity in a way that manages any potential conflicts of interest quite satisfactorily, so they do not necessarily follow. It is far from clear, therefore, that prop trading is the real problem facing the UK financial system, or that structural solutions address cultural problems. In light of that, and of observations about the practical difficulties of a ban on prop trading, as it is being attempted in the US through the Volcker rule, the PCBS did not recommend a ban on prop trading.
	It is not wholly clear what further evidence would support a different conclusion to that reached by the PCBS in its own assessment, so it is unclear what a further review into proprietary trading within such a short period of the PCBS’s own report would add. Still less is there a need for such a review to be followed immediately by an independent review of the same question. Of course, we have no issue with reviews as a matter of principle: we are just not sure that, in this case, legislating for one in advance really does much for us.
	As the findings of the PCBS do not suggest that prop trading presents a serious prudential risk at this time, I do not think we need to legislate for the regulator to carry out a further review. The absolutely valid point made by my noble friend Lord Lawson was that this could change in the future. That is what we are trying to address. Should that happen, the PRA has made it clear that it already has the powers it needs to bear down on prop trading where it endangers the safety and soundness of a firm or where the risk incurred is not consistent with the publicly stated risk appetite of a bank.
	Moreover, monitoring and reviewing all risks to a bank constitutes an essential part of the PRA’s work. The PRA’s approach is to insist that firms adopt and follow a risk appetite that is consistent with the PRA’s statutory objective to promote the safety and soundness of firms that it regulates. This will include regular monitoring and review of all risks, not limited just to those associated with prop trading. Therefore, to require the PRA by legislation to undertake such a review seems unnecessary. Should we legislate for a review of how reference rates are set, for example? Should we legislate for a review of mis-selling practices? Why, therefore, should we do it for prop trading? It is not apparent to me what problem a review would solve. While I think that reviews can play a useful role, in this case we are not sure that it is justified in advance.
	We need to give the regulator the space to allocate its resources in a way that is appropriate and proportionate when considering all the different risks to the UK financial system, not only focusing on one particular risk. Our more widely framed reporting requirements allow for this. For all of these reasons, I do not think that a review on the particular issue of prop trading is necessary. The regulators are already subject to extensive
	reporting requirements. I expect the PRA to make the Treasury, and Parliament, aware of any emerging risks it identifies, whether through prop trading or anything else. The deputy governor for financial stability has already written to the chair of the Treasury Committee, offering to discuss arrangements for reporting. I therefore ask the noble Lord to withdraw his amendment.

Lord Higgins: My Lords, the Minister says that we do not want to have the regulator wasting resources. However, if we ban an activity, it would not waste resources. I am also not absolutely clear—I thought I was—that we are going to say that proprietary trading by a ring-fenced bank is absolutely banned. If that is so, ought we not to make it absolutely clear in the Bill?
	On the point made by the noble Lord, Lord Turnbull, we have to distinguish between proprietary trading and other activities such as hedging as there may be a case for the bank operating on behalf of its clients by hedging for a foreign exchange risk or whatever. However, that is not at all the same as what is normally meant, certainly by Paul Volcker, whereby banks use a client’s money to take on particularly risky investments which have nothing to do with the client.

Lord Deighton: I was trying to be clear but I shall reinforce my comments. I think this issue was covered on the first day in Committee when we dealt with the details of ring-fencing. It is clear that proprietary trading for ring-fenced banks is not allowed; it is an excluded activity, as defined. As my noble friend implies, there are some exceptions to that which are predominantly related to a bank’s own hedging activities to deal with its own surplus liquidity. My noble friend’s phrasing was accurate and the issue is included in the Bill.

Lord Lawson of Blaby: My Lords, I think that there has been a slight misunderstanding. My noble friend the Minister said that we have gone down the ring-fencing route instead. That is a different matter altogether. The idea of ring-fencing is to put a sharp barrier between the commercial banking operations of a universal bank—the lending to individuals and to small businesses and, indeed, medium-sized businesses—and the investment banking activities. There should be a line between them. There is also the great question, which we debated earlier, as to whether there should be a total separation. This is about whether a universal bank—I agree with my noble friend that it would not be done in the ring-fenced part—should be permitted to engage in proprietary trading at all.
	It is all very well to say that there may be cultural contamination as a result of proprietary trading but that, as there are other forms of cultural contamination as well, we should not bother about this one. I do not buy that. If we can significantly reduce the amount of cultural contamination by making proprietary trading by banks illegal, that is a plus. There may still be other problems with the banking culture, but at least we would have solved an important part of it.
	My noble friend the Minister also seemed to say that there was no need to review this issue. There is a need to review it for the very reason that the noble Lord, Lord Turnbull, pointed out. The overwhelming
	weight of evidence received by the commission in conducting its inquiry was that it would be a very good idea for banks not to engage in proprietary trading for some of the reasons that I and other noble Lords have given in this short debate. However, as the noble Lord, Lord Turnbull, identified, the problem was how precisely you define proprietary trading and distinguish between it and market-making and some of the other activities referred to.
	I have known Paul Volcker for 30 years. He is a very wise old bird. I am not suggesting that my noble friend the Minister is not wise, but of all the people I have known in the financial sector Paul Volcker is among the wisest, if not the wisest. If he thinks that this measure is desirable and workable, that carries a great deal of weight with me. He said that if a chief executive of a bank did not know whether or not he was engaging in proprietary trading he ought to be fired. At one level that is a perfectly good answer. Nevertheless, there is a complicated issue of definition. That is why we have said that we should see how things develop over the next three years and see whether there is a workable system in the United States or whether those who say that it is completely impossible to have a satisfactory definition because it will not work are right. We will find that out and then we will take action accordingly.
	It is nice to hear mention of the notion that the PRA can bear down on proprietary trading as it implies an acceptance that there is, or could be, a problem. However, that is not the same thing as saying very clearly that no bank should be doing this, even if it is not a ring-fenced bank. At present, the Bill does not go far enough in that regard. This is something to which we will almost certainly wish to return on Report. I beg leave to withdraw the amendment.
	Amendment 94 withdrawn.
	Amendment 95
	 Moved by Lord Turnbull
	95: Before Clause 16, insert the following new Clause—
	“Remuneration code
	(1) The FCA and the PRA must prepare (and may from time to time revise) a remuneration code.
	(2) The remuneration code is to apply to all persons who have approval under section 59 of FSMA 2000 to perform a function in relation to the carrying on by a bank of a regulated activity which is designated under subsection (6B) or (6C) of that section as a senior management function.
	(3) The remuneration code must—
	(a) require that persons to whom the remuneration code applies are, except in specified circumstances, to receive a proportion of their remuneration in the form of variable remuneration,
	(b) require that a specified measure of profits is to be used in calculating any variable remuneration which is calculated by reference to profits,
	(c) require that the nature and amount of variable remuneration is to strike an appropriate balance between risk to the bank providing it and fair reward for the receipient of it,
	(d) require a proportion of variable remuneration to be deferred for such period, not exceeding 10 years, as is appropriate to strike a balance between risk to the bank providing it and fair reward for the recipient of it,
	(e) require that no, or only a limited amount of, variable remuneration of a person to whom the remuneration code applies is to be calculated by reference to sales made by the person or by any group of persons employed by the bank providing it, and
	(f) require that non-executive directors of a bank are not to receive variable remuneration.
	(4) A requirement imposed by the remuneration code is a relevant requirement for the purposes of Part 14 of FSMA 2000.
	(5) In this section “variable remuneration” means remuneration (whether in money or in securities or any other form of money’s worth) the amount or value of which varies in accordance with profits, sales or other matters.”

Lord Turnbull: This amendment stands in my name and in the names of the noble Lords, Lord Lawson and Lord McFall. It seeks to legislate for a remuneration code for banks administered by the PRA and the FCA and to provide some headings on its content. I shall speak also to Amendment 96 which seeks to establish a more stringent regime for clawback.
	We can analyse this remuneration issue at several levels. Is a special regime needed for banks? We already have a regime for remuneration in UK corporates, partly determined by BIS regulations and partly enforced by the guidance issued by investors and investor groups such as the ABI and the NAPF. This remuneration structure has recently been reinforced by increasing the amount of disclosure and by increasing the voting power of shareholders. We also have—or have had—a remuneration code for financial institutions—going wider than banks—administered by the old FSA. Why should we go to something more stringent for banks?
	The Parliamentary Commission on Banking Standards took the view that a special regime for banks beyond that required for other financial institutions and listed companies generally was justified. Why was that? We identified a number of characteristics that make banks special. They are responsible for an essential service which has to be operated continuously and has, hitherto at least, created a presumption of being too big or too complex to fail, thereby creating an implicit guarantee which can be exploited. Banks are highly interconnected and can fail very quickly, damaging not just themselves but affecting people’s confidence in other parts of the banking industry and the wider economy. Banks are also very highly geared, as has been mentioned today. Their capital structure is not at all like that of the general run of FTSE companies. Equity counts for low single figures. Like the noble Lord, Lord Flight, I read Essays inMoney and Banking in Honour of R S Sayers, and the ratios were vastly higher in those days. As a result, those running banks are incentivised to take risks and their shareholders are incentivised to support them. Therefore, I think you can rely less on countervailing pressure from shareholders to achieve restraint in bank remuneration.
	Banks are also special in the way they behave. Total remuneration has increased hugely and takes a very high share of the total surplus compared with dividends, taxation, retentions, building up capital and so on. As has also been said today, cash bonuses have been paid on the basis of mark-to-market profits which, in the end, proved ephemeral. There is unlimited upside when remuneration takes the form of equity but, unlike the old partnerships which have gradually been superseded, there is limited downside.
	If you accept the premise that there should be something special for banks, what should be the content of this regime? The first thing that should not be there is what the EU and the European Parliament are trying to put in: a limit on the ratio of variable pay to base pay. That is likely to be counterproductive, pushing up base pay and reducing the quantum which is provisional and, therefore, at risk of clawback. What should be there is something about the proportion of variable pay that is deferred and the time period over which it is deferred. The commission recommended that some, not necessarily all, could be deferred for up to 10 years, in recognition of the cyclical nature of banking.
	Amendment 96 seeks to strengthen clawback. The terms “clawback” and “malus” sometimes get muddled up. Most of what people have said is strengthening clawback is better described as malus. It is where remuneration has been conditionally offered but not yet vested and there is still the option of cancelling the vesting. This clause suggests that, in the really serious case of a bank being run so badly that it fails and ends up being taken into public ownership or requiring the commitment of public money, even sums that have been vested should be at risk. Some of this could be pension money. If someone has paid for a pension regularly, through contributions, I would, by and large, say it was their money. However, we have seen instances where very large, discretionary amounts are paid into people’s pension funds precisely in order to put them somewhere where, hitherto, they have had immunity.
	Those are the principal components of the amendments. You could go further. For example, Charles Goodhart has argued that it is a mistake, in the case of banks, to make variable pay take the form of shares because the shares are highly geared and it would be better if a significant amount was not in shares but in bailable bonds. This would limit the upside but that value would not be transferred if the bank failed.
	What is the scope of these arrangements? How far down the bank should they go? They should certainly cover the senior managers’ regime. What is offered below is not the licensing regime that we suggested which should apply to people who had the ability to damage the bank in some way. As it is set up at the moment, it could be any employee, which is a much less focused scope in terms of who is covered.
	The other issue is about which parts of banking should be covered. We came across this argument and are still uncertain about whether it is those people who work in entities which take deposits or whether it should also cover people engaged in investment banking, which is the common sense view. Another amendment in my name attempts—probably unsuccessfully—to produce a definition which is wider than simply those who are in banking entities which take deposits. However, the noble Lord, Lord Newby, has written to a number of noble Lords recognising this problem and undertaking—I hope he will confirm this—to work with us to find a definition which covers the kind of people and activities that we want it to.
	The final question is whether this all needs legislation. I can confidently predict the noble Lord’s response as we have had it at least three times today. I think he will say, “We agree there is a need for a special regime for
	banks and we agree on lots of the components that should be in it. We will work with you to agree the coverage, but we do not agree that it needs to be in legislation as the PRA has all the powers that it needs”. I think that is pretty much what is in his folder. Why is the commission pressing for legislation? In the whole of the financial crisis, two issues have infuriated the general public. The first, which we dealt with last week, is the absence or extreme weakness of personal accountability. The second is the sense that the banks made the money but did not lose it in the bad times. They were incentivised to excessive risk-taking: too much upside, not enough downside. The public find the existing regime incomprehensible and they want something done about it. In particular, they want assurance that it cannot happen again. The way to ensure that there is no backsliding is to provide the powers proposed in my amendment. We should also set some of the parameters of what that covers.

Lord Eatwell: My Lords, we have already, on some previous amendments, begun to discuss the issue of the culture within banks and the culture which contributed significantly to the disaster in the banking system of the past four or five years. Nowhere does that bite become more evident than in the issue of remuneration. There has been considerable disquiet about the sheer scale of remuneration but this amendment, particularly in terms of the elements listed under subsection (3), goes to the heart of the matter which is the relationship between remuneration and risk-taking and the way in which remuneration systems incentivised, to an extraordinary degree, risk-taking which went way beyond the ability of the financial institution to manage it effectively.
	If we are to persist with the banking structure we now have in this country, with very, very large banks—which are extremely difficult to manage—dominating the banking scene, then it is necessary to de-incentivise the risk-taking which did so much damage. That is the most valuable element in this amendment. The elements to which the noble Lord, Lord Turnbull, referred are also important, but we need to provide a clear statement that a remuneration code will be developed which does not incentivise selling insurance or financial instruments that individuals or firms do not need. This has been a characteristic of banking in this country over the past four or five years and has been directly incentivised by remuneration structures. We have to remove that sort of structure by giving the FCA and the PRA the responsibility to develop a code, expressed here in quite flexible terms, without the excessive rigidity in current European Union proposals. This is a very flexible structure but it focuses on the exact issue of incentives and risk-taking. In that sense, I think that it could achieve an enormous amount in changing the culture in British banking and in ensuring that banking is more stable and significantly safer than it has been in the past.

The Lord Bishop of Birmingham: My Lords, I rise to speak on behalf of the most reverend Primate the Archbishop of Canterbury. He regrets very much that he cannot be in his seat today, but it is seldom that one
	has the opportunity to offer Christian baptism to a young couple, particularly when their child is a future heir to the throne of this country. None the less, I know that he, like me, would want to echo the support for these amendments, which have been spoken to by the noble Lords, Lord Turnbull and Lord Eatwell. In a sense, I now regret that I am here doing my duty, because I could not have put it better myself.
	In the wake of the economic debacles following 2008, one of the greatest areas of concern among the public was the apparent lack of change in the financial fortunes of those whom they viewed as being most responsible for the banking crisis. As we have heard, the salaries of senior bankers seem to remain high and bonus levels have quickly regained their old levels, while for many ordinary people and ordinary businesses across the country, it has been a matter of tightening the belt and looking very seriously at difficult household and commercial budget decisions. The submission of the Church of England’s Mission and Public Affairs Council to the banking commission said of this disparity between what I am going to talk about as two cultures that it,
	“has gravely harmed the public perception of banking”.
	Recognition of the disjunction between these disconnected groups—the wider public, who need the services of good banks, and those who lead those banks—is, I believe, at the heart of what these amendments seek to achieve. It is about implementing sensible measures, and we have been very sensible this afternoon, one with another, about what needs to be done: striking an appropriate balance between risk and reward; looking to the long-term benefits of decisions made by key figures in the banks; and giving incentives for a trustworthy and productive culture, rather than one that promotes excessive risks, ending in disaster. Deferred remuneration, which we have in this proposal, and clawback provisions —central components of the proposed remuneration code—are technical terms, but at the heart of these principles is a simple question: what sort of culture, as has been mentioned by several noble Lords, do we want to establish in these organisations? As the most reverend Primate the Archbishop of Canterbury has already pointed out to the Committee, one rather well known former banking executive said that there had been a culture in the banks focused on what happened when people were not looking.
	There is now an increasing interest, including in your Lordships’ House, in culture, and we heard from the noble Lord, Lord Lawson, about the two principles of prudence and customer-centred or customer-focused culture. I hope that both the Government and the banks will give a high priority to insisting on these profound changes in culture. Indeed, at a regional level—and this may seem a little parochial for the high level of discussion that we are engaged in this afternoon—in Birmingham and the Midlands, well resourced bank employees from well resourced organisations, their banks, are already looking way beyond their computer screens and boardrooms to wider and deeper responsibilities in the community. They are looking at simple things such as finding and supporting young entrepreneurs, and giving basic financial skills to local citizens—I have said before in your Lordships’ House that there are 100,000 citizens in Birmingham who do not have a
	bank account—and they are even getting involved in making sure that future employees of the bank in our local primary schools have enough food at breakfast so that they can learn the basic skills of their education.
	These tentative cross-cultural relationships and initiatives give me hope not only that executives in banks will run sound businesses but that, as they experience and affect for good the lives of ordinary citizens, including those who are much less protected than themselves in ordinary life, the worthy values printed in the foyers of the headquarters of many of our large banks may at last begin to enter not just the policies of the banks and their structures and cultures but the policies, structures and cultures of the leading executives in those banks. I shall mention just one of those banks where these values appear; in fact, I may not mention which bank it is because I think that noble Lords should try to work out which one I am talking about. Those values read: “Serving Customers”; “Working Together”; “Doing the Right Thing”—a new one that has been inserted; and, fourthly, “Thinking Long Term”. It is in the policies, structures and cultures of the leading executives in those banks that I believe culture change will really happen. We have high expectations of that change but, as many noble Lords have said, it needs to be undergirded by legislation. It cannot be left simply to hope or chance or to the individual motivation of altruistic colleagues.
	Therefore, I welcome that in both amendments we find provisions to limit sales-based incentives at both the individual and business unit level. In the PPI scandal, we saw what happens when banks come to value the sale of financial products as the objective of the whole exercise, with little or no thought for customers’ needs. Banks are now having to take responsibility for this culture of “selling at any cost” and the new remuneration code before us seeks to make explicit the realisation that an excessively sales-based culture can be very damaging both to the financial well-being of customers and to the reputation of the banks.
	I hope that my noble friend the Minister will recognise that this amendment is not seeking to overly restrict remuneration, devalue the work that our senior bankers undertake or unduly affect the competitiveness of our world-beating banking sector. What it does is to set out some of the values and virtues that should underlie the banking system: long-term risk management; a fair balance between risk and rewards; valuing customer needs above the sale; and, above all, valuing collective interest beyond the individual or the unit, or even the bank itself. This will be good for both business and society.

Lord Phillips of Sudbury: My Lords, I commend the mover of the amendment, the noble Lord, Lord Turnbull. If, as I assume, this matter is brought back at Report, I should like to raise two questions. The first concerns the fact that the code is to be solely the responsibility of the FCA and the PRA. I wonder whether it should have a broader base than that. The City is a real bubble. The two authorities are part of that bubble, as are most of the people working in them. Everybody—particularly the noble Lord, Lord Turnbull, in moving the amendment—has said that we have to break out of this small enclave to understand
	the wider national, social and cultural impact of what is going on in the square mile. I just throw that idea out.
	My second question concerns proposed new subsection (3)(a) in the amendment, which requires that those subject to the code shall,
	“receive a proportion of their remuneration in the form of variable remuneration”,
	although it does allow specific exceptions. For the life of me, I do not see why that is being insisted upon. Twenty-five years ago, most of the senior bank executives and those on the boards of banks did not receive a variable element in their remuneration at all. The problem that the amendment seeks to address was not present then, or at least not remotely to the degree that it now is. Therefore, again, if this matter is to be brought back at Report, I should be grateful if more thought could be given to the need for subsection (3)(a).

Lord McFall of Alcluith: My Lords, I support the amendment. The most important and admired banker of the 20th century—the late Sir Brian Pitman, the former chairman and CEO of Lloyds—came to the Future of Banking Commission, which I established, and on which David Davis MP, Vince Cable, Roger Bootle and others served. He gave us a lesson that day: he said very clearly that he understood that banks should be run for the long-term benefit of shareholders, and that that was what customers wanted most.
	Sir Brian’s synopsis of what mattered to him as a banker was very clear, when he said in evidence to us:
	“Nobody is a greater believer in shareholder value than me ... It’s long term shareholder value and everything has to be structured around the long term, particularly the remuneration structure … The minute you move to a huge emphasis on short term big bonuses you're going to change the behaviour. It is perfectly possible, in our case for 17 years when I was there”—
	at Lloyds, that is—
	“we were doubling the value of the company every three years for 17 years. Nearly everybody had shares in the company; messengers were worth a quarter of a million pounds when I left because we’d been successful as an organisation. But we believed it all had to start with the customer”.
	He was very clear that if you had the customer in mind in terms of remuneration, you had to measure it on a 10-year basis. Only that way do you find out about the business cycle, and about whether the money paid in bonuses is money that has really been earned at all. As was said earlier, that money was not really earned in the past, because remuneration was based on expected profits, which did not materialise.
	For the senior executives in banks it was upwards all the way: whether the bank went down or up, they had their bonuses. Sir Brian distinguished banks from other organisations as follows: “Banks and insurance companies have the unique ability to engineer increases in profits by pulling a lever that forces their banks to take more risks to lend and invest more relative to their capital resources, unlike other institutions”. That is why, in our report, we wanted a statutory basis, and we wanted the regulator to look at this issue.
	When the noble Lord, Lord Lawson, and I were on the Parliamentary Commission on Banking Standards we considered the same issue on our sub-committee. We examined Barclays and its culture, and looked in
	particular at the structured capital management division —which, incidentally, the noble Lord, Lord Lawson, referred to as tax avoidance on an industrial scale.
	We wanted to find out about the business model for that, and we spoke to insiders. When Sir David Walker and Antony Jenkins came to the committee, we had prepared questions, and my question for Sir David was along these lines:
	“I would like copies of all management reporting and management performance information provided to Roger Jenkins”—
	who established BarCap, along with Bob Diamond—
	“and Iain Abrahams to support the bonus pool”—
	in other words, to provide the numbers for us. I continued:
	“The second one is the information used for the purposes of calculating the bonus pool of the structured capital management division, and the information used for determining the bonuses in particular for”,
	three senior executives for the past decade.
	The reason why we asked for that information is that the noble Lord, Lord Lawson, said in the evidence session that Roger Jenkins, who established the division, had had more than £40 million in one year. Bob Diamond had £100 million over a 10-year period. We wanted to find out exactly how they had earned that. The insiders told us that in 2008 BarCap was responsible for 110% of the profits of the whole entity. Here we had a tax avoidance unit on a massive scale masquerading as a bank, and responsible for 110% of the profits—and we did not have a clue how they made their money. I said that we wanted the information,
	“in sufficient detail in order to identify each of the subcategories of the structured capital management business. In that respect, it will be the year-end management accounts information and quarterly reports information”,
	which we received. We went on to ask for more—and we received absolutely zilch information. So, as we take this banking reform Bill through the House, we still do not know exactly what BarCap was up to.
	What I—and the noble Lord, Lord Lawson, and others—want to know is that the regulator has the authority, so that it can see exactly how a business is performing and getting its money, and what business model and culture it has, so that the remuneration structure does indeed have a long-term basis and serves the long-term interests of society and of customers. That is not happening to date. That is why the amendment is before the House.

Viscount Trenchard: My Lords, I am not sure that I agree entirely with what my noble friend Lord Phillips of Sudbury said about what happened 25 years ago in that the senior management of investment banks—merchant banks, as we called them then—did not enjoy variable remuneration. I worked for Kleinwort Benson for 23 years, and then for Fleming for four years, and more recently for the Japanese bank Mizuho for five years. To me, the culture of Kleinwort Benson was absolutely excellent, honourable and upright, even though it was doing investment banking.
	There was a considerable cultural difference between the banking department and the bond trading department, but that reflected the environments in which the various
	people were carrying out their activities. We should also remember that even the asset management business was not separated at all at that time, and there were obviously enormous conflicts between underwriting securities and buying those same securities for clients’ managed portfolios. Those conflicts were dealt with internally, because of the overall culture, which was excellent. That was one of the reasons why the City of London earned respect around the world, and other places have attempted to model their own financial centres on what they perceived to have been London’s strengths.
	Notwithstanding the disasters that have befallen us, quite a lot of that regard and respect still obtains today around the world. I worry that we are going too far down the road of state interference in remuneration, which is properly the responsibility of management, who are accountable to shareholders. In a command economy that may be the normal thing to do, but I do not believe that if we go too far down that road it will lead to the establishment of the kind of culture that existed in the City of London for decades. That is tarnished and damaged—we all agree—but I believe that it should be restored.
	I do not believe that the case is made that the state should interfere too much in the salaries of bankers, any more than it does in those of the senior management of utility companies, for example. I fear that if the state interferes too much in this area it will definitely lead to the best bankers in the generation now coming up going to work in other centres. Many noble Lords may say, “Good riddance. If they are so greedy, we don’t want them here”, but I do not believe that that is so. We must have a regime that can attract the very best bankers—and I mean the very best in terms of the most capable, but also those with excellent moral standards because that is absolutely necessary.
	Over the past few years, the interference in setting the variable remuneration of controlled persons or senior managers in banks has led to a massive increase in fixed salaries in all banks, including small banks and Japanese banks which do not pay multimillion pound bonuses. The senior directors in Tokyo do not receive the kind of figures that shock ordinary hardworking people in this country. That is understandable because they do not accept that a banker is worth thousands of times more than a comparable engineer or anyone else. Inflation in salaries has occurred over the past three or four years because of the limited interference in variable remuneration that has already happened, and I am certain that if we go as far as this amendment would take us, that will lead to a great deal more inflation in the fixed salary element.
	That is my advice, based on my experience of being a banker in a merchant bank. Fleming was an investment house that became a merchant bank, but it was not one of the original accepting houses. The Bank of England had an influence on the accepting houses, but they were rightly highly regarded. Of course there were slip-ups from time to time, and there always will be, but if we set up a framework that creates an environment where everything is tightly prescribed by the state, that will not encourage innovation or lead to the development of the right kind of responsible culture.

Lord Lawson of Blaby: My Lords, I strongly support the amendment moved by the noble Lord, Lord Turnbull. I know that my noble friend Lord Higgins wants to give us the benefit of his wisdom, but perhaps I may intervene now because I would like to explain to the noble Viscount, Lord Trenchard, why he has got completely the wrong end of the stick in terms of what this amendment is about. I must say that I was puzzled when he said that one of the reasons we got into difficulties with banking was because of interference with bankers’ remuneration. There has been no interference with bankers’ remuneration at all. It is true that there is a proposal from the European Union to cap bonuses, but that is not something we have in this country and the Commission was explicit in saying that we do not want to see it. This amendment has nothing to do with that.
	This amendment is about the structure of remuneration, not the quantum. We are not making a statement about the quantum, but about the structure. I shall explain why that is so. I am sure that the right reverend Prelate the Bishop of Birmingham will accept that nothing in this world is without flaws. I yield to no one in my conviction that, for all its flaws, the market system is the best system for conducting an economy and securing economic prosperity for the benefit of the people of a country. One of the essential elements of the market system, without which it cannot work, is the fear of failure. However innovative, adventurous and enterprising industrialists may be, they always know that if they get it wrong, they will fail. The fear of failure is vital because it is an essential market discipline. The problem in banking is that when you have banks that are too big to fail, that fundamental discipline does not work. That is the difficulty. If it is the case, as it was in the management of the banks up to the crisis, of “Let’s gamble, because heads I win, and tails the taxpayer loses”, you are encouraging gambling. You are bound to see more recklessness, which is exactly the reverse of what banks should be doing.
	The noble Viscount referred to the good old days of the merchant banks. I knew them very well. While I did not have the privilege of working in a merchant bank, for a time I wrote the Lex column in the Financial Times, so I got to know them. One of the reasons for their great success was that although they were extremely innovative and they were staffed by very clever people, on the whole they were partnerships, and the partners had their own fortunes at stake. That was the vitally important discipline, but that is not the case with the banks. Incidentally, however, it is the case for hedge funds. I can recall, as will many noble Lords, that some years back there were a few people who thought there were dangers in the City and that some things might go wrong. What did they point to? They pointed to the so-called shadow banking system—the hedge funds. They thought that the big banks were fine, but that those dodgy hedge funds might cause problems. In fact, there were very few problems with them. Why was that? First, the hedge funds knew that they were not too big to fail. They knew that they would not be bailed out by the taxpayer. Secondly, on the whole, the proprietors’ own money was invested in the hedge fund.
	This remuneration code set out in the amendment is not the whole solution to this problem. We have to make it possible for banks to fail, and that is part of what the Government have been doing with the resolution procedures and the bail-ins; we have read page after page on that. We have to enable banks to fail because that is the only way we will get the right kind of system; not that we want them to fail, but it has to be possible for them to do so. But unfortunately, at the present time, I do not think that they will be allowed to fail. They believe that they will always be bailed out by the taxpayer, so we have to buttress this in another way.
	One of the most important aims of the amendment is to replicate after a fashion the discipline of the partnership. It provides that the PRA will be able to insist that bonuses—saying nothing about how much they are—would have to be deferred for a number of years in order to ensure that top management is more careful. It will know that it cannot grab the all bonus money in one year in the knowledge that the institution will be bailed out later on. Management will have to think a bit longer term. In a sense, it is like top managers’ own capital being invested in the company because their bonuses will be deferred for a number of years. The amendment provides a remuneration code to act as a sort of buttress. On its own it will not do much, but it could serve as an important buttress to other measures that the Government are introducing—there are a few more that I would like to see introduced. That will give us a banking system which is not a casino.

Viscount Trenchard: My Lords, I have listened carefully to my noble friend Lord Lawson and I apologise if, as he said, I got the wrong end of the stick. I would like to make just two points. With regard to my noble friend’s assertion that there has been no interference in variable remuneration by the state until now, unfortunately I believe that that is not correct. I have served on the executive committee of a bank since 2009 and the regulator has definitely interfered with the variable remuneration in terms of its ratio to fixed remuneration. Over the past three years, that has led the firm to increase fixed salaries considerably, and that has been going on in many banks all over the City. I am just saying that that has already happened and that the attempt to apply restrictions on the proportion of variable to fixed remuneration has led to inflation in fixed salaries.
	The second point is that Kleinwort Benson was a listed company when I joined it and that the other merchant banks were mostly companies by that stage. I agree entirely with my noble friend that the partnership ethos was still there, but the listed nature of the businesses enabled even relatively junior people to be awarded modest amounts of shares as part of their variable remuneration from an early stage.

Lord Higgins: My Lords, we have had a fascinating debate within a debate between the noble Viscount and my noble friend Lord Lawson. I merely make one or two points. It seems to me that there is a case for a
	remuneration code. In a way we could let the amendment end after subsections (1) and (2) and leave it to the FCA and PRA to take a view. It raises the question of whether, after they have done so, the code they come up with ought then to be considered further in this House. I leave that on one side.
	As far as culture is concerned, what my former constituents regard as unfortunate is the whole culture of bonuses. I think that they take very strongly the view that the people concerned should be paid a rate for the job and then get on with it. Rather than specify, as this amendment does, that a proportion must be in the form of remuneration which is variable, I think they would rather the opposite—or at any rate, that the proportion which is variable should be limited.
	There are, of course, very real practical problems concerning remuneration in a company which is clearly going on the rocks, when one needs to recruit someone to sort it out. That is a particular case. More generally, we could usefully consider the points made by the noble Lord, Lord Turnbull. The argument for his attitude, if I understand it correctly, on variable remuneration is, “If it is variable, we can claw it back at some later stage”, but that may be a long while after the actual events have taken place. There is also the problem of companies being not just too big to fail but, as has been said on previous occasions, too big to manage. Part of that problem is that we are looking at remuneration for banks which are in that situation. What has become clear in recent events is that people have been paid very large sums when the organisation they are asking to manage is not capable of being managed at the size that it is. Be that as it may, there is a case for a remuneration code, but we should probably leave it to the bodies concerned, which are suggested in this amendment.

Lord Newby: My Lords, we have had an extremely wide-ranging debate on many aspects of bankers’ remuneration. I remind the House of the two specific amendments in front of us. The first imposes a duty on regulators to prepare an additional code on remuneration in relation to senior managers of banks, while the second proposes additional powers for regulators to claw back deferred remuneration of employees of banks that require state aid.
	The statutory requirement on regulators to prepare another remuneration code aims to implement a set of remuneration reforms similar to those recommended by the Parliamentary Commission on Banking Standards. I will explain why the existing remuneration code, current rule-making powers and further regulatory action in response to the parliamentary commission provide a clear basis for the implementation of these proposed reforms.
	The existing remuneration code addresses the commission’s objectives for regulating remuneration in a way that combines a concrete legal basis with a rigorous system for application. The remuneration code is made under the rule-making powers given to the regulators in the Financial Services and Markets Act 2000, including Section 137H, which extends the provision which may be included in remuneration rules. Any breaches of the regulator’s rules, including
	breaches of the remuneration code, can be punished with serious sanctions. The code reflects the Financial Stability Board’s principles and standards for sound compensation practices, and European legislation under CRD IV. So this is a code established under statute and therefore might not in any way be thought to be ephemeral.
	The content of the existing code already goes a long way to addressing the content proposed in the amendment and, where that is not the case, the regulators have indicated their intention to consult further on any necessary changes. So, for using profits to calculate pay, the existing code states that firms must assess current and future risks, and the need for consistency with the timing and likelihood of the future revenues. This clearly requires firms to calculate profit-based remuneration carefully with regard to risks to the bank. On the balancing of risk and reward, the code makes extensive reference to the close relationship that remuneration and risk considerations must have. Reward calculation based on profit and non-financial metrics must encourage effective risk management and not constitute a risk itself.
	On pay deferral, the code specifically requires that at least 60% of variable remuneration above £500,000 or to a director of a significantly-sized firm is deferred over a period of not less than three to five years. On top of the existing requirement, the regulators have said in their response to the PCBS that they will consider adding to their code requirements on deferral. In this area, the existing code is already rigorous and set to become even more so. Regarding the issue of variable pay for non-executive directors, the PRA has stated clearly in its response to the PCBS that there is currently a presumption that this practice should not take place and that this will continue to be the case.
	The FCA is conducting a thematic review of sales-related incentives and assessing what action would most effectively prevent those presenting conduct and stability risks. This could include further high-level remuneration principles for staff not subject to the full remuneration code. Additionally, the PRA and FCA have stated that they will update the remuneration code following consultation next year. This review will take into account the PCBS recommendations, including those on a greater use of instruments such as bail-in bonds to tackle the practice of compensating recruits on change of employment and greater and more granular disclosure by remuneration committees in banks’ annual reports.
	Therefore, to specify in primary legislation exactly what the code should cover on top of the rigorous current approach seems unnecessarily rigid. The exact content of the code will need to be updated from time to time, including in the light of international best practice. Ensuring that the regulators have the necessary powers and authority to undertake such changes in a timely manner is crucial—and that is already achieved in FiSMA. Overprescribing in primary legislation risks adding an unwieldy layer to what is already an effective process.
	I believe we have already given the regulators the necessary powers to apply rules to manage financial stability risk and promote responsible behaviour in banks.
	The existing code is based on internationally agreed principles and is responsive enough to incorporate new provisions when called for. Indeed, nowhere is this clearer than in how the PRA and FCA revisions of the code, and the FCA thematic review, will take account of the parliamentary commission’s recommendations.
	On the subject of the clawback of deferred remuneration at banks in receipt of state aid, I should begin by being clear that the Government recognise, perhaps more than that of any other country, the consequences of bailing out financial institutions. We have been clear that individuals must be held accountable for misconduct and that there should be no rewards for failure. The Government agree that there should be specific powers available for the regulator in relation to remuneration at banks where they require state assistance. The ability to reduce or revoke deferred remuneration when a bank requires state aid would further strengthen accountability and complement the extensive reforms which the Government have undertaken to remove the implicit taxpayer guarantee.
	However, regulators already have the power to require the cancellation of deferred remuneration and loss of office payments where a bank requires state-aid support under their existing powers. In the PRA code, specific provision is made for the reduction of deferred remuneration where a bank suffers subsequent poor performance. Additionally, the reforms introduced under the EU capital requirements directive IV have reinforced existing rules on pay at banks in receipt of state support so that: bonuses are strictly limited where inconsistent with the maintenance of a sound capital base and timely exit from government support; regulators will be able to require banks to restructure remuneration in a way that is aligned with sound risk management and long-term growth; and directors should not receive a bonus unless justified.
	The Government sought to build on these measures to strengthen further the accountability of individuals who are responsible for an institution which requires government intervention by requesting the PRA to consider the PCBS recommendations on this issue. In response, the PRA has stated that following consultations next year revisions to its code will strengthen and broaden the circumstances in which unvested awards can be reduced and vested awards clawed back. The PRA is also considering to whom these rules should apply and whether further powers are desirable in this regard.
	However, extending these powers to cover the removal of pension benefits which have not yet become payable, but which the individual concerned has a contractual right to receive, is difficult. That would restrict the rights of the individual concerned under the European Convention on Human Rights to the “peaceful enjoyment” of his or her possessions. The Government do not consider that this would be appropriate. The PRA will consult further on these issues early next year, including on the details of how the powers should be drafted and the population of staff to whom it should apply.
	The noble Lord, Lord Turnbull, specifically asked to whom the remuneration code applies. The code currently applies—and will continue to apply—to around
	2,700 firms, including all banks, building societies and capital adequacy directive investment firms. That includes broker-dealers and asset managers—such as most hedge fund managers and all USIT investment firms—as well as some firms which engage in corporate finance, venture capital and the provision of financial advice, brokers, multilateral trading facilities and others. In terms of who is covered within those firms, the code defines “Remuneration Code Staff” to include,
	“senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the firm’s risk profile”.
	Some of the principles in the code must be applied to the whole firm, including those on guaranteed variable remuneration and the more general principles around risk management et cetera.
	The right reverend Prelate talked about the culture in the banking sector and changes that he is seeing in Birmingham, which he hopes are the start of a process. I think we would all agree that that is desirable. In some of the big banks at least, there has undoubtedly been a noticeable change in culture in recent months and years. The right reverend Prelate and a number of other noble Lords talked about the overall level of remuneration. That is a matter for the bank’s shareholders but the Government and my colleague in another place, Vince Cable, have strengthened the powers of shareholders to require boards to explain and get approval for what they plan to do on remuneration. That has considerably increased transparency and, I hope, might have a moderating influence.
	The noble Lord, Lord McFall, asked whether the regulator would have access to Barclays management information, to know how it makes its money. I think we talked a bit about this in an earlier debate. The PRA has access under Section 165 of FiSMA to require banks to provide it with all the information or documents that it reasonably requires for its function. That is a very broad power and would cover the information referred to.
	The nub of our argument, as the noble Lord, Lord Turnbull, rightly pointed out in his opening speech, is that we have a code. It is operating with increased rigour and will be amended next year to take account in detail of what the parliamentary commission has said. That being the case, we do not need any further provision.

Lord Turnbull: My Lords, I agree that this has been an interesting debate. I start by thanking the right reverend Prelate the Bishop of Birmingham for his supportive remarks. He referred to the way in which companies print mission statements, values et cetera—what the most reverend Primate the Archbishop of Canterbury referred to as doing the three Ps, or, “Print, pin up and pray”. We have to move beyond that and make these things a reality.
	First, I will respond to various speakers. The noble Lord, Lord Phillips, made two comments. One was to ask about all the other people in the City. The remuneration code which exists—I declare an interest as a director of an insurance company—still applies
	and will apply. The issue here is whether a kind of upper tier is to be created that relates specifically to banks. I believe there is a case for that. He also asked why anybody needs variable remuneration. A number of noble Lords have given the answer to that. One is that in builds in fixed costs. In the case of banks, why do you defer? One reason is because, particularly given the way that they are accounted for, profits which look okay today vanish tomorrow—they are ephemeral. You suddenly find that a series of trades that you had valued at a certain level just disappears. You wait and see until the profits are actually made and then you can pay it out. The argument has also been made that this would tend to raise base pay. A degree of variable pay is actually a beneficial part of the system, although it needs to be controlled.
	The noble Viscount, Lord Trenchard, asked about leaving the responsibility to shareholders. If shareholders own only 3% of the business, are they really going to be a sufficiently powerful force, particularly when their investment is highly geared? They share the same incentive as the managers. The managers are, in a sense, over-incentivised and the shareholders are the same. The other thing that has come out is that there are strong externalities working in this world. The failure of a bank, and particularly the banking system, has the ability to create havoc over a wide area. The impetus and responsibility on the state to see that the banks provide a continuous service means that other people have a locus in this. You cannot simply allow banks to be run with the entire remuneration system being put into the hand of one set of stakeholders, such as the shareholders.
	As for inflation over the past two or three years, my reading is that bank pay has probably plateaued in that period. Most inflation came in the decade before that, when there was precious little intervention from either the state or investors. The noble Lord, Lord Higgins, said that my support for variable pay was based on giving it to them so that you can then claw it back, but the deferral is really there because you want to make sure that these profits have actually been delivered and the benefits then shared with the bank, in terms of its capital, and through dividends. I absolutely agree that many banks are too big to manage. At the moment, a lot of them are shedding activity, although we will have to wait and see whether they are going fast or far enough.
	The Minister’s response was pretty much as I expected but there was also quite a lot of “wait and see”. There will be new proposals but what is not clear is how far the Government have really taken onboard that there is a case for going further with banks than with other financial institutions. This crisis owed nothing to the rest of the City; if anything, the rest of the City were victims of it. We were arguing that provisions for longer deferral were more appropriate for banks than generally.
	It is partly a question of knowledge; I do not know that people really understand what the remuneration code is. Between now and Report it would be quite good if the PRA or the Treasury could circulate to us what this code now looks like, which propositions are currently being consulted on and which decisions, if any, have not yet been put into effect. We will then be
	better able to judge whether we think this is going to be adequate, otherwise it really is a case of “Trust us, we’ll get round to it”. But this crisis is six years on. Time is moving on, so simply saying “We will get some further proposals next year” is not enough. A better job needs to be done in informing people of what is currently being considered. They will then be in a better position to make a judgment on whether that is good enough or whether we need to go further. Preferably, to pick up the point that the noble Lord, Lord Lawson, made, if there was quite a lot more time between now and Report we would be able to look at that to get a better understanding of what is in the pipeline.
	The final question was about pensions. If you say, “What is in someone’s pension fund is inviolable”, you create an absolute incentive for people to stack money in there. This is about not their contributions but the discretionary payments that the company has decided to put in. Perhaps it has put another £1 million into someone’s pension fund. If that is done on a contractual basis, by saying, “Here is the regular contribution we make to your pension fund and here is the addition that we are making. You should be aware that that bit could be clawed back”, then I do not really accept the argument that says, “It’s your money now—it’s absolutely yours forever and we can never touch it”. You need to set up the basis on which deferred pay is offered in a way that makes it possible to claw it back.
	We have seen in two cases, RBS and HBOS, that pensions were a crucial issue. In both cases, by a kind of popular pressure, concessions were made but it should not really need to depend on that. We should not simply accept the story that nothing more can be done. However, there is work needed to understand what the PRA and the Treasury have in mind. That would put us in a better place to take the discussion further between now and Report. On that basis, I beg leave to withdraw the amendment.
	Amendment 95 withdrawn.
	Amendment 96 not moved.
	Amendment 97
	 Moved by Lord Turnbull
	97: Before Clause 16, insert the following new Clause—
	“Special measures
	(1) This section applies where the FCA or the PRA—
	(a) has reason to believe that a bank’s systems or professional standards or culture do not provide sufficient safeguards against the commission of actions in respect of which the FCA or the PRA has power to take action, but
	(b) do not have reason to believe that any such action has been committed (ignoring any action which is already being investigated or in respect of which action has been or is being taken).
	(2) The FCA or the PRA may give notice to the bank of the belief mentioned in subsection (1)(a).
	(3) If the FCA or the PRA gives a notice under subsection (2), it must invite the bank to make representations showing that sufficient safeguards are in place.
	(4) Following the giving of a notice under subsection (2) and the receipt of representations under subsection (3) (if any are made), the FCA or the PRA may commission an independent
	investigation into the bank’s systems and professional standards and culture with a view to establishing whether sufficient safeguards are in place; and for that purpose—
	(a) “independent” means independent of the FCA, the PRA and the bank, and
	(b) an investigation may not be commissioned from a person involved in the auditing of companies.
	(5) The bank must cooperate with the investigation.
	(6) Following receipt of the report of the investigation under subsection (4), the FCA or the PRA may by notice require the bank to take measures to provide sufficient safeguards and to monitor their effectiveness.
	(7) The bank must—
	(a) comply with the notice, and
	(b) appoint an appropriately senior member of the bank’s staff to oversee compliance.
	(8) Compliance by a bank with a duty under this section may be considered for the purposes of the exercise by the FCA or the PRA of functions under FSMA 2000.”

Lord Turnbull: Amendment 97 would create a regime of special measures. In the report of the Parliamentary Commission on Banking Standards, from paragraph 966 onwards, we argued that regulators should have a power to give notice to a bank where they believe that the bank’s systems, professional standards and culture do not provide sufficient safeguards. First, they could require an independent investigation, and then require a remedial programme of corrective action. This would be seen as a precursor to enforcement. It is basically a way of trying to avoid getting into the morass of enforcement. A similar regime is operated in the US by the office of the controller of the currency. It is called the safety and soundness plan.
	Although the amendment refers to the PRA or the FCA, I believe that it would work best if the special measures plan was jointly owned. The twin peaks system of regulation has its advantages but there was always a danger that with each regulator focusing on its specific areas of concern, between them they would fail to capture the bigger picture. There could be a more generic problem of standards and culture and this would be an opportunity to work collectively and engage with the bank.
	It may well be that yet again the response is that regulators have these powers already. Indeed, if they believe that the way that a bank is being run is a risk factor, they can impose a capital add-on. However, the argument against all these cases where we have these powers already comes back to if that is case, how did we get into this problem in the first place? What we are trying to establish is whether things will be different in the future. It would help us judge that better if the PRA/FCA could produce a working document on how they envisage using powers of this kind—a special measures regime—where they are looking for generalised improvements in the culture and the way that a bank is being managed. I beg to move.

Lord Newby: My Lords, we agree with the spirit behind the special measures proposal, as the noble Lord expected, but we do not believe it is necessary to give the regulators new powers in this area. They already have the powers to do everything the PCBS has asked. We have therefore been working with them on how they could respond to the recommendation using their existing powers.
	The regulators published their responses earlier this month. These responses explain that both the FCA and PRA can, and in fact do, use the powers that they already have to do many of the things that the PCBS recommended and that are included in the amendment. The regulators have a significant range of powers to identify and tackle serious failings, either to rectify existing problems or prevent further consumer loss or reputational damage to markets. In fact, the regulators are able to replicate all the steps outlined in the amendment using their existing powers.
	For example, the regulators already have the ability to give notice to a firm through an appropriate mechanism, be it a letter or an e-mail, as a matter of course if they have any concerns or think there may be a problem. The regulators will look to engage with the firm to address the concerns they raise. Whenever it is appropriate, the regulators may request information from the firm under Section 165 of FiSMA. If, following an investigation, the regulators believe further action is needed, the PRA and FCA can use their powers under Sections 55M and 55L of FiSMA to impose requirements on firms to undertake or cease a particular action. These powers can certainly be used to require a bank to adopt additional safeguards or to strengthen its existing safeguards.
	Similarly, the regulators can appoint an independent person to undertake investigations using their power under Section 166 of FiSMA to commission a skilled persons report, or under Section 167 to conduct an investigation into the business of an authorised person. Both the PRA and FCA are committed to doing so in instances that they believe add substantially to their understanding of an issue. However, we do not think it is appropriate that the use of an independent person should be a requirement in all cases. There are some instances where the necessary information will be available from other supervisory sources making any such requirement unnecessarily costly and counterproductive.
	Finally, there are already duties in regulations made by the regulators that require firms to deal with their regulator in an open and co-operative way. It may be that the noble Lord has not had a chance to look at the responses from the regulators and that, having done so, he will be satisfied, or, equally, that he would like further clarification. I suggest to him and any other noble Lords who have a particular interest in this matter that, if they have any further concerns having looked at those documents, we would willingly arrange a meeting with the Treasury to discuss any further elaboration that the noble Lord feels would help clarify how the system is going to work. Given that the powers exist, we really believe that the special measures powers envisaged in the amendment are unnecessary, and I therefore ask the noble Lord to withdraw it.

Lord Turnbull: I am grateful to the Minister. I think I received a link to the document but never got round to reading it. I will go and find it again and if I cannot find it I will come back and ask for assistance. I welcome the fact that this is recognised as a tool by the regulators. It may be that when I have read the remarks the Minister has just made, I will find that satisfactory.
	One other point that I agree with concerns the use of Section 166. At various conferences I go to around the City, people think that Section 166 is probably being overused. Very often you could say, “We want you, the company, to investigate this. You could get it done by your chairman of audit or your chairman of risk or someone else”, but inevitably one of the four accounting companies ends up being a rather expensive and laborious way of doing it. I share the noble Lord’s sentiments on that.
	I will go and do a bit more homework. In the mean time, I beg leave to withdraw the amendment.
	Amendment 97 withdrawn.
	House resumed. Committee to begin again not before 8.32 pm.

Earl Attlee: My Lords, the usual channels have set us a bit of a challenge: noble Lords on the Back Benches have two minutes’ speaking time. I can help by reminding noble Lords that when the clock shows “2”, your time is up.

Millennium Development Goals
	 — 
	Question for Short Debate

Baroness Jenkin of Kennington: To ask Her Majesty’s Government what assessment they have made of the United Nations High-level Panel report into the successor agenda to the Millennium Development Goals.

Baroness Jenkin of Kennington: My Lords, I feel a bit guilty with my 10 minutes. Anyway, I welcome this opportunity to debate the impact of the United Nations high-level panel report into the successor agenda to the millennium development goals.
	I start by welcoming my noble friend Lord Bates on his maiden outing to the Dispatch Box. Noble Lords may be aware that I co-chair Conservative Friends of International Development. There can be no more consistent and committed friend to international development than my noble friend. I doubt that there are many, if any, noble Lords in the Chamber today who are not aware of his recent walk from London to Derry, spending 35 days of his summer holiday walking 518.8 miles to draw attention to the plight of the children of Syria and in so doing raising the enormous sum of £50,000 for Save the Children. There may be others watching this debate or reading it in Hansard, or who may stumble across it later, who are not aware of this astonishing and generous feat. I urge them to find my noble friend’s JustGiving page, which is still open for donations. Tragically, Save the Children are in just as great a need of support in their humanitarian work in Syria today as when he finished the walk on 9 September.
	This has been momentous and exciting year for development. As well as the high-level panel report, highlights include the UK’s achievement of the 0.7% GNI target, and hosting the nutrition summit and the G8.
	We can all be justly proud of the role that our Prime Minister and his team played in steering the panel and ensuring the delivery of such an ambitious agenda. There were times when the vision now laid out in the report seemed to be a long way off and I congratulate all the panel members and its co-chairs on rising to the challenge.
	After five meetings, around 5,000 pages of submissions and more than 500,000 people consulted, the report is clear, intellectually coherent and moves on the debate about poverty and development without losing what is good in the existing agenda. It offers a clear storyline and an indicative set of goals to provide an example of how this might all translate into the post-2015 agenda.
	The report is also a big leap of ambition from the MDGs. It includes, but goes well beyond, the core MDG business of health, education and poverty, and encompasses infrastructure, property rights, governance, violence and personal safety, an end to discrimination, and gender equality. It suggests aiming for zero targets—such as no people living in poverty—combined with nationally defined rates of progress towards that end.
	The report has been well received both domestically and internationally. It has set the benchmark against which the discussions and processes of the next two years will be judged. This judgment will be against not only the report’s content but the way in which the panel conducted its work. Its emphasis on the importance of broad consultation and listening to the voices of the poor and vulnerable must be continued throughout the process.
	No speech about the successor agenda can be delivered without referencing the historic impact of the MDGs. They motivated global action around a common cause: that absolute poverty was indeed beatable. The 13 years since the millennium declaration have witnessed some of the largest and most successful development impacts in history. The target of reducing extreme poverty rates by half was met five years ahead of the 2015 deadline. The target for access to improved sources of water has already been reached and there have been drastic falls in deaths from malaria, and in maternal and child mortality. Fewer people are dying of AIDS, malaria and TB.
	That said, there is much more to do and it is important that we do not forget that there are still two years left to deliver on the current MDGs. The need to finish the job is one from which we should not be distracted. However, as the high-level panel itself said, we must go beyond the current MDGs because, commendable as they are, they did not focus enough on reaching the very poorest and most excluded. Reaching the target to halve poverty is a staggering achievement but one that leaves half the people in poverty behind.
	The report states clearly that we can and must eliminate extreme poverty from the face of the earth by 2030. The Prime Minister helped to steer the panel to a consensus on the five big shifts required to achieve this visionary aim. Although everyone in this Chamber will be familiar with these shifts, they are worth restating. First, we must leave no one behind. We can end poverty by 2030. We can eliminate preventable infant deaths and we can make dramatic reductions in maternal mortality. Secondly, we must put sustainable development
	at the core, bringing the environmental and development agendas, which have been separated for decades, back together. Thirdly, we must put a focus on transforming economies for jobs and inclusive growth. As we all know, growth is the only real exit from poverty, meaning a much greater focus on promoting business and entrepreneurship, infrastructure, education and skills, and trade. Fourthly, we must build peace and effective, open and accountable institutions for all, ensuring that we tackle the causes and not just the symptoms of poverty. Fifthly, we must forge a new global partnership that brings national Governments, businesses, community groups, donors, local government and others to work together.
	It is also true that ending poverty is not a matter for aid or international co-operation alone. The 2015 process must also be about developed countries reforming their trade, tax and transparency policies. This should build on the work already established under the Prime Minister’s leadership of the G8 in June this year.
	Before moving on to the task that lies ahead, I will take a minute to reflect on what we in this House can and should be doing. As we approach the MDG deadline, we must consider the role of democratic governance and parliaments in continuing to promote development objectives. Participation, transparency and accountability are playing an increasingly important part in the post-2015 development agenda. The outcome document from the UN special event on MDGs last month mentioned that the new set of goals should,
	“promote peace and security, democratic governance, the rule of law, gender equality and human rights for all”.
	Parliamentarians play a critical role in meeting those requirements through their law-making, budgeting and oversight functions and their roles as the representatives of the electorate.
	In September, UN states affirmed their commitment,
	“to a transparent intergovernmental process which will include inputs from all stakeholders including civil society, scientific and knowledge institutions, parliaments, local authorities, and the private sector”.
	However, the onus—and responsibility—is on parliamentarians to engage with those negotiations, which will be launched at the beginning of the UN General Assembly in September next year. We must all remain engaged with the process.
	The next couple of years will bring plenty of challenges, but we should not forget that an ambitious successor to the MDGs is in our long-term interests. Every dollar invested in stopping chronic malnutrition returns $30 in higher lifetime productivity. The value of the productive time gained when households have access to safe drinking water in the home is worth three times the cost of providing it.
	We will all be encouraged that the UN Secretary-General’s report on the MDGs picked up on the key ideas from the report. I urge the Government to continue to play a prominent role in the discussions, particularly in New York where the negotiations will take place. We wish the UN and the Governments luck and wisdom as they, together with civil society, businesses and other development actors, negotiate the final set of goals over the next couple of years. I think of the
	report as a Christmas tree, currently loaded with lots of glittering baubles; the task ahead is to prune that tree in order to get the results we need.
	I leave your Lordships with this: on page 19 of the report the panel provides examples of the potential impact if its recommendations are successfully implemented. In short, it could mean a real and lasting impact on the poorest in the world. There would be 1.2 billion fewer people hungry and in extreme poverty; 1.2 billion more people connected to electricity; 1.3 billion tonnes of food per year saved from going to waste; 470 million more workers with good jobs and livelihoods; $30 trillion spent by Governments worldwide transparently accounted for; and 220 million fewer people who suffer crippling effects of natural disasters. Can there be a more pressing or important agenda for this House to support?
	Finally, during our deliberations and discussions let us never lose sight of the fact that behind these enormous numbers lie people: human beings, individuals and families; real people with the same hopes, fears and aspirations as us, but people born and trapped in poverty, unlike those of us lucky enough to have been born winners of the golden lottery ticket of life.

Lord McConnell of Glenscorrodale: My Lords, I thank the noble Baroness, Lady Jenkin, for securing and opening this debate, in particular with such an outstanding and comprehensive speech, allowing the rest of us to add value to what she has said, rather than fill in any gaps. I echo her welcome to the noble Lord, Lord Bates, who, I hope, retains his passion for this subject, even if he is now speaking from a different seat than he was before. It is good to see him on the Front Bench.
	In the time available I do not want to restate in detail my deep and firm commitment to have at the heart of the new development goals the eradication of poverty; the need for women and girls to have a central role in making those changes; and the vital need for an expansion in educational opportunities as the surest route out of poverty and the best way to develop the potential of every citizen on the planet. It is vital that we complete—or at least, maintain the momentum to achieve—the millennium development goals between now and 2015.
	We cannot have peace without development, nor development without sustainable peace: the two go hand in hand. Therefore it is right that we welcome the report referred to by the noble Baroness, Lady Jenkin, which puts at the heart of this new agenda the need for security, good governance, democracy, human rights and gender equality. If we have one goal over the next two years, in the difficult arguments and negotiations that lie ahead, it should be to ensure that the situation in conflict-affected and post-conflict states, where the poorest of the poor, the most vulnerable and hardest to reach people on our planet suffer far too much, is at the heart of this new agenda, so that we really secure the opportunity to eradicate poverty by 2030.

Lord Dholakia: My Lords, I add my thanks to the noble Baroness, Lady Jenkin, for securing this debate.
	“Leave no one behind” has been the spirit of the millennium development goals since their inception. Yet the fact remains that, even after 15 years in which the proportion of people living in extreme poverty has been halved, 70 per cent of those not lifted out of poverty are women.
	As the deadline of the millennium development goals hovers into view, it becomes clear that areas that require critical examination are those that affect women and girls most sharply. For example, only two countries out of 130 have achieved gender parity in education. Development is not always held back because of a lack of resources; sometimes it is held back because someone is holding it back. It is certainly crucial that women and girls are taken into proper account in every single one of the new goals. The lives of millions of girls are blighted by violence, whether that is armed conflict, domestic violence or the gender-based violence faced by girls in their own communities in the form of female genital mutilation. By categorising FGM as something done a long way away, in cultures we do not understand, we resist helping those who have suffered and those in danger of suffering.
	The current generation of millennium development goals lets down girls and women. The omission of a goal to eliminate violence against women is a glaring one. This can be cultural violence, the abbreviating of the potential of girls who die when they become pregnant. It can certainly be physical violence, as with the example of FGM. Robbery is also violence; the refusal of some Chinese universities to allow girls to study engineering, as recently reported by the BBC, is to steal from them their potential earnings and status in society. Few of those goals, therefore, can be leapt towards by the simple act of changing one’s mind.
	Ending gender inequality is the exception to that, and I call upon Ministers and leaders to seize goal 2 of the high-level panel’s report, hold it in both hands and commit to preventing and eliminating all forms of violence against girls and women.

The Earl of Sandwich: My Lords, the MDGs were overambitious, but the post-2015 agenda is reaching beyond the bounds of the possible. Through the high-level panel we are promising not to reduce extreme poverty but to end it altogether, in all its forms; to transform economies; and to build peace and good governance, involving civil society. The UN and its various panels have a huge task in reconciling the updated MDGs with the sustainable development goals. There are now almost too many concepts coming out of these panels, and I doubt that we will end up with the clarity of the original MDGs. Sustainability can, however, be a test of effective, lasting development, in which the beneficiaries become the principal actors, such as farmers putting new techniques into action or health workers drawn from the local population.
	To achieve the scale of activity required is going to mean even greater commitment to development assistance. Some of the documents referred to increased and more effective methods of finance. The EU is suggesting a range of options and says that investments towards
	the goals “should work seamlessly together”. Here we hit a snag. Economic recession has meant that aid from the EU has fallen, despite the calls for 0.7 per cent. The Minister might like to comment on that.
	Water and sanitation are likely to be rated much higher in future development goals. Climate change is another priority. I welcome also the likely new emphasis on gender, given that women make up about two-thirds of the world’s poorest. Enabling local people to improve their own environment and health is one of the most cost-effective forms of development, saving three or four times its investment in economic productivity.
	Institutions such as the EU, the World Bank and even our own DfID cannot easily adapt their perceptions of development to the needs on the ground; they have to learn to build upwards from the knowledge and ability of the communities involved.

The Lord Bishop of Ripon and Leeds: My Lords, I am grateful to the noble Baroness, Lady Jenkin, and I share the welcome for the high-level panel report. I believe it could be strengthened in two areas. The first area is environmental sustainability. The millennium goals are weak on climate change and the high-level panel report does not make it sufficiently clear that global warming already damages the economies, and therefore the poor, in poorer countries such as Bangladesh. The panel has the laudable aim of eliminating $1.25 a day poverty but that needs to be inextricably linked with a new climate equilibrium, which we are far from attaining. Do Her Majesty’s Government agree that there needs to be a legally binding global climate deal in 2015 in line with the scientific consensus?
	Secondly, the emphasis on absolute poverty must not hide the danger of increasing inequality in our world. Income inequality is rife in both richer and poorer countries and is one mark of the increasing power of elites at the expense of those in poverty. I regret that the powerful analysis of Pickett and Wilkinson’s Spirit Level, that less equal societies do worse, has almost disappeared from our political debate. This inequality within and between nations is exacerbated by the failure of tax justice so far to ensure that multinationals pay a proper proportion of tax and that this is paid in the countries where their profits are made.
	Will the Government support a post-2015 agenda which focuses on inequality as well as eradicating extreme poverty; and how could a new set of goals ensure a more equitable distribution of power and resources, both within and between nation states?

Lord Patten: My Lords there is no hope at all of the excellent aims of the high-level panel being achieved by 2030 or anything like it unless two preconditions are met. First, that there is good governance and good government in developing countries; and, secondly, that the undoubted vigour and vim of our great multinational corporations is harnessed to do good in the global economic environment in which they work.
	On good government, I can do no better than quote what the chief executive of the Catholic Agency for Overseas Development, Chris Bain, said on 31 May when he responded to the panel’s report. He said:
	“Ultimately, legitimate goals will hinge on a credible political deal”.
	He went on to say:
	“Freedom of speech and peaceful protest alongside access to information are fundamental to the right of individuals to flourish”.
	So there it is. There is a critical importance to the development of good transparent government, free speech, the rule of law and open and accountable administration.
	I am concerned that one of the representatives on the panel comes from Turkey. I do not think that any of those aims are in Turkey at the moment. Those who demonstrated in civil society peacefully in Taksim Square found that. Turkey, of course, has the unenviable record of having more journalists in its prisons than any other country on earth. I agree with the noble Lord, Lord McConnell, that good government is essential.
	Secondly, we have to recognise that global corporations and financial institutions can do much good. Foreign and direct investment will soon approach five times more than global development aid at a time when global growth prospects will rely more and more on the opportunities in developing and emerging markets in a symbiotic way across the globe. I look with admiration at the work of great corporations such as Unilever, which are totally transparent in what they do to try to help in development and are doing an enormous amount to aid the agenda which the panel has put forward.

Lord Boateng: My Lords, our thanks are due to the noble Baroness, Lady Jenkin, for her work in this field as well as for introducing the report and the debate in the way she has.
	The report is welcome, not least for its references to the importance of agriculture—which has been neglected, I fear, in the current crop of millennium development goals—and inclusive growth as a necessary precondition for jobs and the reduction of poverty.
	My experience of growing up in Africa as the grandson of two African farmers—we should never forget that women play a greater role in agriculture in Africa than do men—has taught me, as has my experience outside this House in Africa, that in order to bring about the “profound transformation” to end extreme poverty and improve livelihoods, to which the report refers, it is necessary to do what it suggests: to harness innovation and technology to this end. The high-level panel is to be commended for that.
	I ask the Minister—I warmly welcome him, as does the rest of the House, to his place—what can we do, what can DfID do, to support higher education, our research councils, our scientific bodies and our private sector in order to promote science, technology and innovation in Africa to underpin agriculture and agricultural growth.
	If this report is a Christmas tree—and it is—it needs science, energy and infrastructure in order to bring it alight. Only with that can Africa fulfil its
	potential and the lion join the tigers as an engine of growth and prosperity, not only for Africa and Asia but for the whole world.

Earl Attlee: My Lords, I am pleased to say that we are doing quite well.

Lord Jay of Ewelme: My Lords, I shall try to keep up that sequence.
	In my view, the existing millennium development goals have been a success and not just a set of targets announced and forgotten. They have been a focus for development activities within the UN system and by bilateral donors. I agree with the noble Baroness, Lady Jenkin, that we must not let up on them between now and 2015. I am sure that the Minister, whose appointment, like others, I warmly welcome, will give us some reassurance on that. They must be replaced by an effective set of goals for the years beyond that. I welcome the high-level panel’s report but the existing MDGs were successful in part because they were simple, relevant and memorable, and because there were only eight. I urge the Government to keep the new millennium development goals to a maximum of 12, and, if possible, fewer.
	I have two specific comments. First, I am glad that sustainable development is at the core. However, I urge the Government to ensure that the renewed MDG process and the UN climate change process are consistent and not contradictory and that they reinforce and do not cut across each other. I would welcome reassurance on that. Secondly, I greatly welcome the first principle in the high-level panel’s report—“leave no one behind”. That is as true for richer countries as for poorer. Think of food banks for hungry children in our own country. It shows that there really is a global agenda here and no longer a “them and us”. Leave no one behind does not mean a lower priority for growth, quite the contrary. It means a policy that ensures that in all countries the fruits of growth reach those who need it. Making certain that that happens is key for all of us in the years to 2030 and beyond.

Baroness Prosser: My Lords, I join others in thanking the noble Baroness, Lady Jenkin, for tabling the debate. The introduction of the millennium development goals in 2000 was greeted with enthusiasm by those involved in international development. A target-based programme designed to address poverty and exclusion in all their forms was a welcome step forward from disparate projects and unco-ordinated expenditure. The outcome document from the UN special event of 25 September this year, convened to review MDG progress and to chart a way forward, states:
	“We will place a strong emphasis on all approaches that have a cross cutting and multiplier effect. In particular, we recognise that promoting gender equality, and empowering women and girls, underpins and advances progress across all the Goals. We will resolutely promote gender equality and eliminate the range of barriers to women and girls’ empowerment in our societies”.
	This is welcome news. While this concept has been recognised by many for a considerable period of time, programmes which include this approach have been few and far between.
	It also has to be recognised that progress will be made only if broad sweep statements such as the one above are developed into detailed plans which themselves recognise that women’s moves towards equality are stymied and frustrated by systemic hurdles and barriers, many of which have been in place for years and which will be moved only by determination and by educating the men involved as to the value to be gained by the whole community. In part this will be achieved by enabling women to move into positions of influence. This could be at local level, playing a part in the determination of priorities, or regionally or nationally. Decision-making bodies from which women are excluded are most likely to contribute along a traditional path, with little attention being paid, for example, to healthcare or educational needs. Women’s influence on sharing resources is essential to outcomes beneficial to all.

Lord Crisp: My Lords, I congratulate the noble Lady, Baroness Jenkin, on setting out so well the background against which we all speak. I want to make two points in two minutes. First, leaving no one behind, or the UN Secretary-General’s version of it, a life of dignity for all, are absolutely wonderful ambitions. I draw attention to how this applies to disabled people. I do so in part as chair of Sightsavers, which deals with blind people. I am very well aware that too often disabled children and blind children in particular are left behind in our current MDGs. The crucial point here is not just the political will. It is also about the data and about gathering the data so that we know how these things are being applied not just to disabled people but to other minorities. What is the Government’s assessment of how these data can be collected and how well they can be collected over the next period?
	My second point, following others, is that the MDGs in health have not been fully met. HIV/AIDS is not yet beaten. Child mortality is too high and maternal mortality is absolutely appalling in too many places. I ask the Government two things. First, what are they going to do to ensure the implementation of the recommendations of the independent expert review group chaired by Joy Phumaphi and Richard Horton which is arguing for greater acceleration on progress to the health MDGs, particularly MDGs four and five at the moment? Secondly, how can the Governments of the world collectively ensure that the current MDGs are carried forward and progress continues to be made after 2015, as it will need to be?

Lord Judd: I declare an interest as the former director of Oxfam and VSO, and also currently as a trustee of Save the World. Congratulations are due to the noble Baroness, Lady Jenkin, on having secured the debate and on her highly effective speech in introducing it. She established the need for a major debate in this
	House, preferably in government time, because this is such an important part of their commitments and strategies that we need to have a proper, full debate.
	It is essential to recognise that we must ensure shared objectives. It is not us, the wealthy, telling the poor what to do, but ensuring that the poor themselves are involved in the ownership of the programme that is put forward and to which they are expected to respond and that they feel that it is theirs, not ours. It also recognising the interplay between specific targets and the matrix. What is the matrix? Let me rattle through the points to illustrate it: children and women, education, ecosystems and sustainable management of natural resources, climate change with the consequent vast movement of people, gaps in achieving MDGs within individual countries, and also the inequality and injustice in income levels between men and women, social groups and the able and disabled, universal public services, redistribution of wealth, effective and progressive tax systems, strengthening resilience and advancing human rights, sustainable peace and state building, conflict resolution, and analysing the causes of conflict. There is a huge list. We cannot possibly do it justice tonight. The sooner there is a full debate, the better.

Lord St John of Bletso: My Lords, I join in thanking the noble Baroness, Lady Jenkin, for introducing this short yet very topical debate. I agree with the noble Baroness that economic growth is a key enabler to reducing poverty. However, as several noble Lords have already mentioned, the goal of achieving sustainable development requires good governance, transparency and effective accountability. Development requires peace and peace requires sustainable economic development.
	Continued rapid urbanisation in many developing countries poses problems of its own. It is estimated that in several African cities the population will treble in the next 35 years. That will have the inevitable result of the proliferation of squatter camps and displaced families. The recent global partnership report highlighted 12 goals to end poverty by 2030 but scant mention was made of what measures were being taken to improve effective communication. Measuring poverty continues to be a barrier to effective policy making. While more than 80% of Africans have access to a mobile telephone, less than 4% have access to reliable and affordable broadband. Africa is well serviced with undersea fibre optic cables but has totally inadequate connectivity to the mainland. My simple call today is for more measures to promote universal affordable broadband, which will by its very nature improve education, healthcare and job creation and ultimately reduce poverty.

Baroness Tonge: My Lords, I congratulate the noble Baroness, Lady Jenkin, on securing this popular debate, which has been more like “Just a Minute”on Radio 4 than a debate.
	The UN high-level panel report emphasises that future development should be sustainable. We must therefore ensure that we address the thorny problem of the growth of world population, which is leading to
	more and more poverty, conflict and migration. Bad press in the past makes us reluctant to mention it, but goals we set for development will never be achieved because the goal posts will have moved in the mean time, unless we do something about population growth. To tackle the problem, we can and must concentrate on the health and reproductive rights of women, ensuring for instance that the 220 million women with an unmet need for contraception have their needs met. If they can voluntarily—I repeat, voluntarily—limit their family size—and they will—they will then be able to access education and join in with economic activity in their own countries, which we know is key to development.
	I implore the Minister to ensure that the Government build on the excellent initiative at the family planning summit last year and ensure that a target is set for universal access to sexual and reproductive rights and the continuing pursuit of women’s empowerment and gender equality. I feel passionately on this issue as a former family planning doctor and chair of the All-Party Parliamentary Group on Population, Development and Reproductive Health.

Viscount Craigavon: My Lords, I will go straight to what I believe—which the noble Baroness, Lady Tonge, also seems to believe—is the most important part of the MDGs and an integral part of sustainable development: population dynamics and reproductive health. In the recent special event meeting in September, heads of state and government confirmed that they will target the existing most off-track MDGs and those where progress has stalled, such as,
	“universal access to reproductive health, including maternal health”.
	That wording again emphasises the importance of reproductive health, and confirms that the existing goals have not been forgotten.
	For post-2015 goals in this field, there has been widespread advocacy of a stand-alone target on universal access to sexual and reproductive health and rights. Those in this field believe that sustainable development can only be underpinned by meeting the widely acknowledged, unmet need for reproductive health services and by giving women the choice in freely planning the size of their families. At the same time, it has to be acknowledged that another side of sustainable development is reflected in our western overconsumption and excesses. However, to put it rather simply at this stage, the benefits of family planning do not have to wait until levels of education have improved or stable economies are in place. As Marie Stopes International in particular has shown, reproductive health provision, if provided in the right way at any stage of development, can be successful and beneficial to all.
	For the new goals and the debate over the coming months, the UN Population Fund has produced a short and highly readable document entitled The Future UNFPA Wants for All. This contains seven key points, each summarised in a few sentences, for the post-2015 development agenda. In the time available, I can only recommend it and say that it demonstrates, in so many ways, how population and reproductive health matters must be an integral part of sustainable development.

Lord Collins of Highbury: My Lords, I will not cover all the points that I wanted to in the two minutes available. However, I thank all noble Lords for their contributions and in particular the noble Baroness, Lady Jenkin, for initiating this debate—and I welcome the noble Lord, Lord Bates, to the Dispatch Box.
	I welcome many of the recommendations in the high-level panel’s report, especially its focus on inequality of opportunities. However, its failure to recognise the marked increase in income inequality is concerning, as the right reverend Prelate mentioned. That was a major omission from the MDGs. Many leading economists believe that tackling inequality will be essential to achieving the goal of eradicating extreme poverty. However, despite this, the Government have refused to back measures to tackle it. Perhaps the Minister will assist the House by explaining the Government’s reticence to endorse such measures.
	On gender equality, the suggested target to eliminate discrimination against women in political, economic and public life is a positive start. However, nothing will change if we do not focus on the means to increase women’s participation. On current rates of progress, women will not be equally represented in parliaments until 2065, and will not make up half the world’s leaders until 2134. Perhaps we can start by setting a better example in this country. Will the Minister therefore back calls for specific measures across all political parties, to increase the number of women candidates at the next general election, including all-women shortlists?
	To conclude, I will focus on another issue that is of particular concern to me: economic inclusion. Two and a half billion people do not have access to basic financial services—an issue not featured in previous MDGs. I therefore welcome its inclusion as an indicator for goal 8 on inclusive growth and goal 2 on gender equality. Will the Minister, in responding to the debate, indicate that he will work hard to ensure that these indicators will make it into the final framework? Specifically, will he ensure that they will be discussed by UK officials at the open working group on sustainable development goals when it meets in November?

Lord Bates: My Lords, I thank all noble Lords who have taken part in this debate. It has been an incredibly disciplined performance, which has allowed me more time to respond than I had anticipated. I will therefore try to respond to as many questions as possible.
	I join noble Lords in paying tribute to the noble Baroness, Lady Jenkin, for the way in which she introduced this debate and for her consistent support for this issue as the co-chair of Conservatives for International Development. The noble Baroness talked about my charity endeavours, but I seem to be for ever receiving e-mails from the noble Baroness about her charity endeavours, and I know that many other noble Lords have incredible track records as well. The noble Baroness spoke powerfully and knowledgeably about the issues and in particular highlighted what had happened already through the millennium development
	goals. Sometimes there is a certain cynicism about goals and targets. However, the fact that since 2000 we have seen the level of extreme poverty reduced by half and that 3 million fewer children under the age of five die each year is quite an extraordinary progression. Much has been done, but as the noble Baroness reminded us, much still needs to be done.
	I also thank noble Lords for their warm welcome to me in this position. I was just reminded that exactly five years ago, when I came to this House, I made my maiden speech in a debate on the UN millennium development goals, and here I am making my maiden speech from the Government Front Bench on this same subject. I appreciate that, because when you look at those statistics—and remember that behind each of those statistics, as we were reminded, there are human beings—I can think of no more important issue before your Lordships’ House than this one.
	The Government strongly welcome the report of the High Level Panel on Post-2015 Development Agenda. The members of the panel, including, of course, the Prime Minister, came with the very bold target of trying to eradicate poverty by 2030. The noble Baroness, Lady Jenkin, talked about the need to tackle the root causes, as well as the symptoms, of poverty. Noble Lords will know that there is no record of a single conflict-affected country that has achieved one of these millennium development goals. We should therefore remember, as the noble Lord, Lord McConnell, said so passionately, that there can be no development without peace—and there can probably be no sustained peace without development. It is very important to us to see those recognised in these millennium development goals.
	The noble Lord, Lord McConnell, also referred to the importance of including women and girls, in particular, in the development targets, as they are critical to a whole range of cross-cutting measures to the reaching of wider goals. The noble Lord, Lord Dholakia, referred to gender parity. Again, we see that that is included in the proposed targets, and the goals to back them up. Specifically and rightly, it is focused on the need to have a target for reducing violence against women and girls. The noble Earl, Lord Sandwich, made a very good point about the number of goals that are increasing, although the proposed targets beneath them are being reduced. This is, of course, a report to the UN General Assembly, so there will be a process through which they will be prioritised and sharpened. However, it was very important to get the maximum amount of consensus around what the targets needed to be. The noble Lord also pointed out that contributions and aid from EU member states had fallen because of the recession. What can the Government do about this? They can use persuasion; and in many areas of life the best way to lead is by example. Her Majesty’s Government, in being the first of the G8 to reach the 0.7% goal set out some 30 years ago, is leading in the right way.
	The right reverend Prelate the Bishop of Ripon and Leeds asked two very specific questions on climate change. Of course, on climate change we have in goal 7 the aim to secure sustainable energy, while goal 8 is to create jobs, sustainable livelihoods and equitable growth. The report highlighted some very important issues.
	One of the most staggering figures was that the bottom billion, to which we referred, consume 1% of the world’s resources, while the top billion consume 72%. It is therefore axiomatic that it is unsustainable. You can argue that you want wealth and prosperity to increase—and we do—but if it happened at that rate, there would be major problems. It is right, therefore, that there is a sustainable dimension to this. That a parallel track is going on here with the Rio+20 initiative is the big contribution. Linking them both together, I think, gives the right balance between development and the environment.
	My noble friend Lord Patten spoke with great experience about the importance of businesses in this regard. I would say two things. First, the high-level panel took the approach of trying to include voices from business; 250 representations were received from businesses. This had to be part of a global partnership between NGOs, between businesses and between Governments. My noble friend will be aware that one of the key recommendations to come out of it was the golden thread argument that it all is dependent on economic growth, development and trade. I thought it was a very important point.
	The noble Lord, Lord Boateng, spoke from his immense experience in this area about Africa and agriculture and again referred to areas of innovation and technology. There is some good news here in the goals and specific targets, about how technology can be used to deliver the progress that we all seek and the contribution to the Global Fund. Of course, the global partnership will also help move towards this, as will higher education and science. The developed world can do this by attracting and inviting more students and making it possible for more students to benefit from world-class higher education.
	Everywhere you look in this Chamber you see people who have been at the forefront of pursuing this agenda over many years. The noble Lord, Lord Jay, talked about the importance of climate change and development. I thought that he spoke very astutely, as a distinguished former Permanent Secretary, of ensuring that the two sides are actually joined up in their thinking as they move forward with their recommendations.
	The noble Baroness, Lady Prosser, talked about the cross-cutting issues and in particular about empowerment for girls and women. Again, we see that set out in the second of the goals with a number of new proposals and targets, which I think will make progress in the area that we want.
	The noble Lord, Lord Crisp, talked about disabled people and about the data collected. Data are one of the key elements in this. I was reading the excellent contribution from the noble Lord, Lord McConnell, on Lords of the Blog about the quality of data in development. It is a very big issue. That is why there needs to be a partnership. It cannot just be down to the Governments to collect those data. There is a role for NGOs and civil society to provide data that can help us in measuring that.
	The noble Lord, Lord Judd, has immense experience in this area from his time with Oxfam, which he mentioned. He talked about a number of things, probably the most important being that we need more time to
	discuss this. As a business manager as well as a Minister on this occasion, I cannot dodge that. I assure the noble Lord that I will take up that issue and perhaps through the usual channels come back with more time for us to debate this.
	The noble Lord, Lord St John of Bletso, talked about the importance of internet connectivity. This is absolutely critical. Mobile telephony has transformed prospects in the developed world through banking and communication. The same could be done through the extension of smart grids, efficient transport, storm-water management, energy-efficient buildings and particularly broadband and internet connection. That is a point very well made.
	My noble friend Lady Tonge referred to the importance of population. Of course, when the original Millennium Development Goals were set out, there were 1 billion fewer people on the planet. If those goals are to be achieved, they will have to be achieved at a time when there will be another 1 billion, by 2030. That is why the provisions on access to sexual and reproductive health measures in the report are so important and why the Government are committed to try to see them through to reality. The noble Viscount, Lord Craigavon, made the same point about population. This is absolutely at the core of what we are talking about.
	The noble Lord, Lord Collins—I thank him for welcoming me to the Dispatch Box—talked about the importance of us leading by example in appointing more women candidates and having a greater role for women in this country. I totally agree that that is very important. Probably the best thing that I can say in the Government Benches’ favour is to point to my noble friend Lady Jenkin, who secured this Question for Short Debate; not only has she worked in international development, she has done so much to get more women engaged at the highest level of government.
	This has been a very important debate. There have been some immensely strong contributions and, going forward, we can reflect on what has been done, which is substantial in real lives and real progress. We can also be excited by those striving goals of seeking to eradicate poverty within this generation; that will be historic, and we will all have played our part.
	Sitting suspended.

Financial Services (Banking Reform) Bill

inancial Services (Banking Reform) Bill8th Report from the Delegated Powers Committee10th Report from the Delegated Powers Committee

Committee (3rd Day)(Continued)

Amendment 98
	 Moved by Lord McFall of Alcluith
	98: Before Clause 16, insert the following new Clause—
	“Whistleblowers’ compensation
	(1) After section 206A of FSMA 2000 (suspending permission to carry on regulated activities) insert—
	“206B Whistleblowers’ compensation
	(1) If as a result of an investigation carried out in accordance with this Act the appropriate regulator is satisfied that an authorised person has mistreated a whistleblower, the appropriate regulator may require the authorised person to pay to the whistleblower compensation of an amount determined by the appropriate regulator to be appropriate having regard to the financial implications of the mistreatment for the whistleblower.
	(2) In this section “whistleblower” means an individual who works or worked for the authorised person (whether or not as an employee) and who—
	(a) gave information to the appropriate regulator for the purpose of initiating or facilitating the carrying out of an investigation in accordance with this Act, or
	(b) gave to a colleague information relating to any matter which might be relevant if the appropriate regulator were deciding whether to initiate the carrying out of such an investigation or were carrying out such an investigation.
	(3) In this section a reference to mistreatment includes a reference to any form of discriminatory or unfavourable treatment.
	(4) A payment under subsection (1) is to be made only if the whistleblower chooses to accept it; and a whistleblower who accepts compensation under this section may not bring civil proceedings (including, but not limited to, proceedings before an employment tribunal) in respect of, or in reliance on, the mistreatment in respect of which the compensation is offered.
	(5) The procedural provisions of this Act in relation to the imposition of a penalty under section 206 apply to an award of compensation under this section.””

Lord McFall of Alcluith: My Lords, it is my pleasure to move Amendment 98 on behalf of my parliamentary banking standards colleagues, the noble Lords, Lord Lawson and Lord Turnbull. Essentially, the Parliamentary Commission on Banking Standards is saying that banks must put in place mechanisms for employees to raise concerns when they feel discomfort about products or practices, even where they are not making a specific allegation of wrongdoing. It is instructive to note that during the whole financial crisis, not one whistle was blown. Why was that? The issue of fear of damage to one’s career is central. Therefore, we must ensure that we have a system that rectifies those deficiencies.
	One recommendation from the parliamentary commission is that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime for the effective operation of the firm’s whistleblowing regime. We would like the Government to consider that. I am sure that the noble Lord, Lord Lawson, and I feel that that recommendation does not go far enough, particularly when one considers the situation in America. My noble friend Lord Brennan informed me earlier that under the Dodd-Frank Act, the SEC has an Office of the Whistleblower within individual companies. The United States is far ahead of us on that, and, if we do not allow the chairman to undertake this, we are ducking one of the main responsibilities that we want to give to the chairman, which is to accept individual accountability.
	We were littered with examples of chairmen putting their hands up and saying, “Nothing to do with us. We didn’t know about the mis-selling scandals. We didn't know about the LIBOR scandal. We didn't know about the interest-rate scandals”, et cetera. If the system is to work properly, the chairman must be responsible. We consider that it is important that the chairman
	should be held personally accountable for protecting whistleblowers against detrimental treatment if we are to have a system that is worthy of the name in this area.
	We recognise that whistleblowing reports should be subjected to an internal filter by the bank to identify those that should be treated as grievances. Banks should be given the opportunity to conduct and resolve their own investigations of substantial whistleblowing allegations.
	The regulator should also have a part to play here. It should periodically examine a firm’s whistleblowing records in order both to inform itself about possible matters of concern and to ensure that firms are treating whistleblowers’ concerns appropriately.
	The FSA’s evidence to the committee appeared to show little appreciation of the personal dilemma that whistleblowers face. It should regard it as its responsibility to support whistleblowers.
	We also noted the regulator’s disquiet about the prospect of financially incentivising whistleblowing. As a commission, we call on the regulator to undertake research into the impact in the US of financial incentives in encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency. Two representatives of the SEC gave evidence at one of our hearings on how incentivising whistleblowing was going in the United States.
	It is the financial sector that must undergo a significant shift in cultural attitudes towards whistleblowing, and change its view from one of distrust and hostility to a recognition that whistleblowing is an essential element of an effective compliance and audit regime.
	We note that the Government did not reject our proposals, but do not propose to address them in the current legislation, instead placing the issue of whistleblowers in the context of a wider piece of work led by the Department for Business, Innovation and Skills. We feel that the FSA should be right at the centre of the issue. As a commission, we concluded that not only did internal compliance and formal control structures fail to uphold proper banking standards, but a culture of fear prevented employees from speaking out about serious wrongdoing.
	There are a number of examples to which we could refer, but the FSA did its own investigation into Barclays at the time of LIBOR. In June 2012, it came out with its final notice in which it imposed a financial penalty of £59.5 million on that bank. Because,
	“Barclays agreed to settle at an early stage … [it] … qualified for a 30% … discount under the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £85 million on Barclays”.
	When we looked at the evidence that was presented to us on Barclays, we found that there were dozens of people in open trading desks for several years while this practice was going on. At UBS we found that there were up to 100 people who were there for a decade and that there was a clear e-mail trail on the issue. We could only conclude that if one is asked to do something wrong, there has to be whistleblowing so that the company can develop a better culture and better process to enable it to deal with it. We do not wish people to feel that their career will be threatened if they do whistleblow or, indeed, if they do not.
	When we looked at the LIBOR situation at Barclays, we asked witnesses what this behaviour meant about the culture of Barclays and of the banking industry. As I mentioned, the final notice from the FSA painted a picture of a close-knit group of people who were colluding to try to manipulate LIBOR. For example, the following conversations were noted:
	“Trader C requested low one month and three month US dollar LIBOR submissions”.
	That was on 7 April 2006. Trader C was quoted as saying to his colleague:
	“If it’s not too late, low 1m and 3m would be nice, but please feel free to say ‘no’ … Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”.
	Then the submitter replied:
	“Done … for you big boy”.
	In October 2006, an external trader stated in an e-mail to Trader G:
	“If it comes in unchanged I’m a dead man”.
	Trader G responded he would “have a chat”. Barclays’s submission on that day for three-month US dollar LIBOR was half a basis point lower than the day before, just as requested. The external trader thanked Trader G for Barclays’s LIBOR submission by saying:
	“Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.
	Those are clear, open e-mails and no one can tell any of us, particularly the banking commission, that others in Barclays did not know what was going on with that situation. The noble Lord, Lord Turner, in one of the most understated comments, said that the actions over this period indicated a cultural weakness with Barclays. One might say: “You can say that again”. We read many submissions covering the direct exchanges. I will repeat just one more. Trader C said:
	“The big day [has] arrived…My [New York desk] are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”.
	The submitter said:
	“I am going 90 altho 91 is what I should be posting”.
	Trader C came back and said,
	“when I retire and write a book about this business your name will be written in golden letters”.
	The submitter, maybe with a little bit of common sense, replied:
	“I would prefer this not be in any book!”.
	Those comments are in e-mails—that is the trail. That is why we need whistleblowing. People were scared to give their point of view to those further up the management trail. Barclays is just a case study of all that has gone wrong with the culture. We on the commission are asking for disclosure of significant supervisory correspondence and matters considered. It would be helpful to know how many of these went to enforcement.
	When I was investigating this in the last Parliament, I spoke to senior individuals in the FSA. They were very clear with me. They said that Barclays’ legal and compliance team were intimidated by Bob Diamond and others. They said that the senior legal and compliance team should be sacked because they knew about LIBOR and the capital raising for a long time. Not one legal or compliance officer at Barclays ever graced the door of the FSA to complain about that situation.
	It happened down the line as well, particularly at the front-line, retail-desk level with PPI, with individuals being pressured in that regard. At a breakfast conference this morning, Martin Wheatley was very clear. He said that these individuals at the front-line level were trying to eke out a salary of £16,000 to £18,000 a year. They had been asked to sell PPI alongside loans and other products and would receive an extra couple of thousand pounds a year for doing so. At the top level, however, huge sums were involved. Distorted incentives led to a situation where, as a result of PPI mis-selling—deliberate mis-selling by companies—the banking industry could face a bill of £30 billion. Financial stability could be threatened as a result of these perverse incentives. The PPI scheme went on for 18 years. I suggest that if a rigorous, appropriate whistleblowing regime had been in place whereby individuals did not feel that whistleblowing would end their career, the PPI scandal could have been stopped well before that length of time had passed. As has been mentioned, a culture shift at the top in terms of accountability would help to increase confidence in this regard down the line. The chairman must be accountable and take responsibility in this area and must ensure that the whistleblowing regime works well.
	Martin Wheatley said this morning that the Financial Services Authority had lost its focus on the moral compass and on being honest. Perhaps if we have an appropriate whistleblowing scheme we will start to reinject honesty into the system, to ensure a better culture and better ethics whereby individuals in a company feel free to serve the interests of the company and the customer and thereby help society.
	Amendment 98A (to Amendment 98)
	 Moved by Lord Phillips of Sudbury
	98A: Before Clause 16, line 16, at beginning insert “directly or indirectly”

Lord Phillips of Sudbury: My Lords, Amendments 98A and 98B stand in my name. They seek to tease out a little more detail in relation to the amendment just moved by the noble Lord, Lord McFall, on whistleblowing. I say at once that I am wholly in favour of that amendment. The position of whistleblowers in our country is not satisfactory. Amendment 98 would widen the portal to offer assistance and compensation for whistleblowers by giving the appropriate regulator the power of initiative with regard to getting appropriate compensation for whistleblowers.
	My amendment is designed to widen the scope of that initiative as, at present, I feel that it is unnecessarily limited in that the whistleblower is defined by proposed new Subsection (2) in Amendment 98 as a person who gives information directly to the appropriate regulator or gives it to a colleague. I notice that the amendment does not define “colleague”. Suffice it to say that many of the circumstances in which whistleblowers are sometimes encouraged—and feel morally compelled—to speak out are extraordinarily complex.
	I have had the good fortune to do work for the charity Public Concern at Work. Indeed, I set it up 20 or so years ago. That charity continues to do extremely valuable work. I spoke to people at the charity a couple of days ago and, believe it or not, they had been approached by roughly 2,500 whistleblowers in the past year. Astonishingly, I think that scarcely any of the whistleblowers were from the City. There are particular issues around that and we can underestimate the extraordinary pressure that a whistleblower or would-be whistleblower feels under in the context of the City, particularly as it is a very tight community in many ways. At the moment, the only recompense that a whistleblower can get, if he or she is discriminated against and suffers loss, is by using the provisions of the Public Interest Disclosure Act 1998. However, the whistleblower has to take the initiative. This amendment, as I say, gives the initiative to the regulator, which can be of enormous help and assistance to the whistleblower.
	The Public Interest Disclosure Act 1998 scores over this amendment by having a much wider entrée to the remedies than is provided by the amendment. In particular, my amendments put the words “directly or indirectly” into the beginning of the two subsections that define how a whistleblower gets into the circle of potential compensation when they talk about giving information to the appropriate regulator or to a colleague. This is because—and I have checked this with Public Concern at Work—a lot of those who want to speak out are really anxious, if not fearful. What very often happens is information gets to the regulator in a really indirect, round-the-houses way, sometimes anonymously. My simple amendment is designed to open up the door but it is also a probing amendment in the hope that between now and Report we can have discussions with the Government on the optimum way of finding the remedy which the amendment seeks to supply.
	I finish by giving some idea of how much wider the Public Interest Disclosure Act is regarding “getting into the remedy”. Clause 1 of the Act inserts a four-page amendment into the Employment Rights Act 1996 and provides a multiplicity of definitions of who is a whistleblower for the purposes of the remedy. An example of its sensible provisions is that a “qualifying disclosure” is one that is made in good faith, is substantially true, is not made for personal gain and,
	“in all the circumstances of the case, it is reasonable for him to make”,
	and so on.
	It may be possible, at the next stage of the Bill, to import some of the language of the 1998 Act or, indeed, insert this amendment as an amendment to the 1998 Act.

Lord Eatwell: My Lords, I am sure that the Treasury has studied carefully the experience of a measure developed in the United States which is very similar to this and which has been remarkably successful over the past three or four years in bringing forward very important information to the regulatory authorities. When the noble Lord replies, perhaps he would reflect on the American experience and say how valuable it might be to replicate it here.

Lord Brennan: My Lords, I support the amendment because it recognises the obligation of society to protect and deal justly with people who report serious wrongdoing, often at personal cost. The 1998 Act recognises that in its statutory effect. This modest amendment is designed to deal with the relationship between the whistleblower and his employer in relation to an employment claim. I invite the House to look at the question of whistleblowing in a much broader context. The more monolithic the organisation, the tighter its internal process controls, the less likely it is you will find out about wrongdoing. Almost paradoxically, the whistleblower becomes more important —single though that person usually is—according to the size of the enterprise about which he makes revelations. That explains to a considerable degree the point raised by the noble Lord, Lord Phillips of Sudbury, about the effects upon these people of taking such a step.
	As I said at Second Reading, the four major banks are, in a broad sense, in charge of four times our gross domestic product. Whistleblowing in organisations as big as major banks is a highly exceptional event. In considering the role of the whistleblower in this context, the Government should, I suggest, have regard to public reaction if it is not seen to be the case that whistleblowers are not only protected but encouraged by legislation such as this. Regulators are there to regulate, not to police in the sense of investigation, detection and prosecution. That is not their usual role—certainly not historically—in this country. Therefore, the whistleblower in this country has even greater importance than he or she has in the United States.
	In the United States, the Dodd-Frank Act—the US counterpart of this legislation—introduced special provisions for whistleblowing, not just in banking but in financial institutions generally. It provided for payment to whistleblowers according to the extent of the misconduct that the whistleblower had revealed, as assessed by the SEC—the equivalent of our regulators. So, for example, if a whistleblower had disclosed LIBOR, the payment would reflect the importance of the discovery in relation to the economic loss that had been suffered.
	That is exceptionally important. The greater the danger to the whistleblower within his or her employment or in relation to their future and that of their family, the more they should be protected, including financially —but with reason, I accept. If you do not do that, you expose the whistleblower to what almost amounts to serious persecution. One has only to look at some of the events that have occurred in the National Health Service, where whistleblowers in different hospitals or hospital trusts have had their careers ruined, and there was even, I suspect, a suicide a year or two back. This is serious stuff. These are citizens revealing misconduct by great institutions, and no more civic an act could you expect an ordinary person to perform.
	In the United States as a result of Dodd-Frank, which was enacted in 2011, in the financial year 2012—the first full year after its enactment—there were 3,000 reports to the SEC. My enthusiasm and that of my noble friend Lord McFall led us to misunderstand each other. The Office of the Whistleblower is a permanent office within the SEC, and its purpose is to investigate claims and to co-operate with and look after the
	whistleblower. It works. When the new chairman of the SEC said publicly, “Now we are not only felt; we are feared”, one of the main reasons was the whistleblower threat. If we want to change culture, this is a very effective way of doing so. Good intentions count for a lot, but in changing culture, an intuitive fear of finishing up in jail counts for a lot more.
	The amendment seeks to protect the whistleblower only within the context of their employment—to test compensation against the degree of mistreatment they have suffered. There is no element of reward for their virtue in revealing misconduct that we intend to categorise in the Bill as a serious crime, meriting up to seven years’ imprisonment. I suggest that the analysis of both US experience and ours calls for a change of culture on our part as legislators, as well as through the executive and the regulators. If we do not take this seriously, we will be allowing the risk that that kind of thing will happen again.
	The understandable but eventually unattractive repetition from the Government Front Bench of, “This is not necessary,” surely does not apply to this sector. This is necessary. Parliament said that it was necessary in 1998, and it is now necessary on a much grander scale than we ever envisaged at that time. If we come back to this subject at Report stage we may find a whistleblower clause that is more wide-ranging, that takes into account the previous Act, and which is designed to achieve the change in culture that I and others have remarked upon.
	Whistleblowing take place at different levels. In a perfect world, when there were imperfections and misconduct the whistleblower would report to the chairman, because there would be a system of trust and protection. That should be enough—enough, often, to stop things happening before they start to get really serious. That would be the perfect example of how whistleblowing should work. But until we reach that stage, we have to work on the basis of deterrence—people whistleblowing about what is happening, which results in such serious offences being detected and stopped, people being punished, rewards being given, and the creation of the atmosphere of deterrence and the expectation of future good conduct for which we are all aiming. I seriously suggest to the House that if we do not make special provision for whistleblowers in the Bill, people—society in general—will feel that we have failed to enact a specific, effective and necessary measure to protect them.

Lord Watson of Invergowrie: My Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.
	In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the
	voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.
	The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.
	Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.
	This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?
	The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.
	Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?

Lord Newby: My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.
	In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.
	Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.

Lord Lawson of Blaby: I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.

Lord Newby: My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.

Lord Phillips of Sudbury: I am sorry to interrupt my noble friend again but it is important for the House to know a little more about this public consultation. I suspect that not one single person here tonight is aware that there is a consultation out there and that it is closing in a matter of a few days. Can the Minister tell us how widely this has been advertised, because it is news to me?

Lord Newby: My Lords, I am very happy to write to the noble Lord about the process that has been followed up until now. The whole process of this Bill has demonstrated, as the noble Lord has said, that there is tremendous activity—whether in terms of the regulators producing documents or of other regulatory initiatives, which are very hard to keep up with. I will ensure that we write as a matter of urgency to all noble Lords about this exercise.
	Before coming on to what the regulators are already doing in this area, I want to stress the basic point about this review. First, it is wide ranging. Secondly, it aims to beef up the current system. Thirdly, it will apply across the board because the Government do not believe that the financial services sector has a different status in terms of whistleblowing to, say, the oil and gas sector or the pharmaceutical sector. What we need is a common approach across all sectors.
	The FCA is already extremely active in supporting and encouraging whistleblowing. The number of whistleblowing contacts received is growing rapidly. There was a 370% increase between 2007 and 2012. The SEC has done very well. It received 3,001 reports in 2012. In the same year, the FSA received 3,929 reports. The impression has been given that the Americans have this system which is generating huge quantities of people coming forward and that the City is absolutely in fear to the extent that no one is coming forward. The figures totally contradict that view. I am not saying for a minute that the system is perfect, cannot be improved or will not be improved, but that the numbers of people coming through in the City are higher than is the case in the States. The FCA’s whistleblowing procedures have been revised to actively track whistleblowing outcomes across the FCA while cases are actively monitored to provide feedback, wherever legally possible, to whistleblowers.
	On the point that the noble Lord, Lord Brennan, raised, the regulators have a role in enforcement and protection. The Dodd-Frank Act brought in protections for whistleblowers which, to a considerable extent, already existed in the United Kingdom. The American scheme is of course not what is proposed in the UK, as the noble Lord said. Under that scheme, whistleblowers can receive a proportion of any penalty received from successful enforcement action arising from tips that they provide. That is different from what this amendment proposes. Although the PCBS said that it would like research to be undertaken in this area, it did not suggest an incentive scheme. The regulators are undertaking research, as requested by the parliamentary commission.
	The regulators are therefore already doing a lot, including undertaking research, while the Government are undertaking a review of the whole issue across all the sectors. In the light of that, I hope that the noble Lord will withdraw his amendment.

Lord McFall of Alcluith: My Lords, the Government’s response to every amendment is, “Manana, manana”. There is nothing in the response but, “Tomorrow, tomorrow”. There is, for example, a public consultation that we know nothing about. As noble Lords have said tonight, this is a very modest proposal. The Minister really has the wrong end of the stick here when he asks why we should protect whistleblowers in the financial services industry and what is different here from in the oil and gas industry. The Government themselves think that it is different. Why? Because they appointed the noble Lords, Lord Lawson and Lord Turnbull, and me to a Parliamentary Commission on Banking Standards, along with Members of the House of Commons. We spent a year of our lives—10,000 questions and 180 hours in committee—before presenting a report to the Government. That is why the financial services industry is different from others.

Lord Newby: My Lords, is the noble Lord seriously suggesting that whistleblowing in the financial services sector—we are talking about whistleblowing here—is of a different order of public interest from whistleblowing in, say, the pharmaceutical or oil industry?

Lord McFall of Alcluith: We have had the biggest financial crisis ever but not one whistleblower. That is the magnitude of the problem which the Minister does not grasp and that is why we looked at this issue. Goodness gracious, look at the fines: £85 million for Barclays and £13 billion for JP Morgan today. There is a litany we could go through, so what is the problem?
	The Government set up a commission to look at culture and standards. What did the Parliamentary Commission on Banking Standards find? It found that the culture was rotten and the standards were abysmally low. This whistleblowing amendment—a modest amendment—is being put forward to ensure that we have a better culture, and that we have legal and compliance teams in companies that might have the nerve and confidence to go the FCA and say, “Look, there is wrongdoing in this company and we do not feel that we can assuage our conscience on this. We need to report it to the FCA to ensure that we have a better organisation here”. This has failed totally. That is the magnitude of the problem facing us and that is why we have this modest amendment.
	The USA was mentioned. We had two witnesses before us from the USA who were very clear that we did not scrape the ground with the FSA. My noble friend Lord Brennan has given his wisdom on the situation in the USA tonight. We are asking the Government and the FCA to look at the experience in the USA to see if that aspect can be adapted. As the noble Lord, Lord Phillips, said, his charity did not have one person from the City. That backs up the evidence that we heard and gives the initiative to the FCA. That is the purpose of this amendment.
	We received representations from trade unions in a sub-committee evidence session. The trade unions were very clear to us that their members at the grass-roots level felt pressurised but were scared stiff to do anything about it. I have a number of examples but will give the
	Minister one in particular. An individual I have known in my own town of Dumbarton for years, who worked in one of the banks for 25 years, left to become a care worker at less than half the salary. I asked her why she left. She said, “John, I was being forced every week to sell products that were not only unsuitable for people but were making their lives miserable. I could not partake in that, so I left”. There was someone who had been committed for 25 years being pressured on issues like that. Surely we should have a system to say “That person has given loyal service. That’s a person who wants to serve their bank and their community. Let’s establish an appropriate structure so that we protect that person, and also make the company better”.
	I suggest to the Minister that there is a link between the almost £30 billion that we will be paying out in fines for PPI and the conduct of a company. If the proper procedure was in place and that information came up from the bottom, we probably would not have the abysmal situation we have with the £30 billion.
	This amendment is about not just changing the culture and standards but helping the safety and soundness of companies. It was a responsibility given to us, the Parliamentary Commission on Banking Standards, by the Government to give recommendations to change the culture. This is a sound way of doing that and I would have expected a more sympathetic and engaging response from the Minister than we received tonight.

Lord Phillips of Sudbury: My Lords, I should quickly make clear that the whistleblowing charity, Public Concern at Work, is not mine; I was merely the lawyer who set it up. However, it does wonderful work. I am delighted to hear that there is a public consultation. I am very anxious indeed that it may not have reached the parts that it should have reached. I ask the Minister if it possible for him to look into that and, if necessary, extend the consultation period for, say, a month.
	Amendment 98A (to Amendment 98) withdrawn.
	Amendment 98B (to Amendment 98) not moved.
	Amendment 98 withdrawn.
	Amendment 99
	 Moved by Lord Lawson of Blaby
	99: Before Clause 16, insert the following new Clause—
	“Abolition of UKFI
	(1) All property, rights and liabilities of UKFI are, by virtue of this section, transferred to the Treasury.
	(2) Immediately after the transfer effected by subsection (1) UKFI is dissolved.
	(3) “UKFI” means UK Financial Investments Limited, company registered number 06720891.”

Lord Lawson of Blaby: My Lords, the noble Lords, Lord Turnbull and Lord McFall, also have their names to this amendment. It is the simplest amendment that we have before us. It may be because it is so simple that it was the first one that my right honourable friend the Chancellor rejected after the commission had published
	its recommendations. I think that he was hasty and I therefore hope that the Government will reconsider this.
	Briefly, as a result of the crisis that broke in 2008, the Government felt obliged to rescue a number of our biggest banks. The Government took control of these banks to the extent of more than 80% in the Royal Bank of Scotland, which was their biggest stake. This was the previous, Labour Government, and instead of straightforwardly taking this stake which the taxpayer owned—and the Government is a trustee for the taxpayer—they interposed this curious body called UK Financial Investments Ltd. We all know why this was done; I fully understand it and am extremely sympathetic. There is always a fear that a Labour Government might be engaged in a policy of bank nationalisation. In order to demonstrate that this was just a rescue operation and not bank nationalisation, they created this body, UKFI, to stand between the Government and the bank itself.
	Clearly, that no longer applies. There is no longer a thought that somehow this is nationalisation by the back door. Whatever else the coalition may be guilty of, it is not seeking to do that. So the whole rationale—the whole raison d’être—of UKFI has gone. Incidentally, not only was it a conclusion of the commission that UKFI should be abolished but it was also the strong view of the previous Governor of the Bank of England, now the noble Lord, Lord King. He made it absolutely plain.
	The reason is clear. UKFI gets the Government off the hook in a way that they should not be off the hook and obscures what can really go on. What has happened in practice is that when the Government have had difficult decisions to take, they say, “Oh, we can’t do it. UKFI owns the controlling stake”. When, however, the Government want to intervene—for example, the removal of Stephen Hester from the job of chief executive of RBS—they use their muscle. When it is convenient to act directly, they do; when it is not convenient, they have this charade of UKFI to give them an excuse for not doing what needs to be done.
	If, as a Government, you have the responsibility of the controlling shareholding, that should be quite clear and you should exercise that responsibility properly and be held to account for it. The Government say, “But we don’t have banking expertise”. Of course they do not have banking expertise. It does not matter because they can appoint the right people to the boards of the banks that they hold and, as we have suggested, they can also have a cadre of banking experts within the Treasury who can advise them on how to handle the situation.
	Like the previous Governor of the Bank of England, we have said that quite simply UKFI should be abolished. I suspect that many people secretly—or at least without admitting it—realise that that should have been done long ago, but it is not too late. The case of the Royal Bank of Scotland is particularly to the point. If UKFI had not existed, the Government would have had to face up earlier to the question of what to do about the Royal Bank of Scotland Group. The commission has said that there is a very strong case, which we have advocated, for the classic good bank/bad bank split.
	The good bank/bad bank split is a classic technique for dealing with major banking problems: put all the bad loans into the bad bank, as was done with Northern Rock, and not only can the good bank be privatised much more quickly than the group as a whole, it can get back to lending to SMEs much more effectively.
	One of the biggest economic problems we have is the difficulty of lending to SMEs. Some people say, “Money is very cheap. The rates could not go any lower: they are 0.5%”. They are not 0.5% for SMEs. A good SME is lucky if the rate of interest, including the charges it has to pay, is in single figures. Very often it is 10%, 11% or 12%. There is a real problem in this country that the banks have so much bad debt on their books, and are so scared of having any further bad debts—particularly since they have been told they have to strengthen their balance sheets and so on—that they are far too reluctant to lend. This is a real problem for the British economy.
	I am very glad that my right honourable friend the Chancellor has said that he will set up an inquiry and that he has asked the Rothschild Group to look into this, given that that was the recommendation of the banking commission. I hope that this evening my noble friend the Minister can tell us the outcome of the Rothschild investigation and what the Government’s intentions are. This is important to the British economy, bearing in mind the huge size of the Royal Bank of Scotland Group.
	As we have recommended, the way to clean this up is to abolish UKFI, which was there for a purpose that no longer exists. I very much hope that the Government will reconsider the Chancellor of the Exchequer’s overly hasty rejection of the modest and sensible recommendation of the commission. I beg to move.

Lord Garel-Jones: My Lords, I rise with some trepidation to take part in this debate. Earlier in Committee my noble friend Lord Lawson referred to Paul Volcker as a “wise old bird”. Someone like me is bound to observe that most of the wise old birds in this particular field in our country have taken part in this Committee, so I feel slightly out of my depth. I want to introduce a small piece of anecdotal evidence that casts some dubiety on the amendment just moved by my noble friend.
	I also declare an interest, in that I work for UBS. UBS was one of the lead banks in the recent transaction that placed £3.2 million of shares in Lloyds Bank into the market, although I was not part of the team working on that transaction. When it was all over I spoke to one of the team and congratulated him on the success of the operation. Without any prompting, and for no reason at all, he said to me that UKFI had played a crucial part throughout the whole process. He had no need to say that to me; I had no connection with UKFI whatever. Although I am simply an observer in these matters and no expert, it makes sense to me for there to be some sort of independent buffer between the banks themselves and the Treasury. Your Lordships will no doubt be aware that UKFI has recently recruited James Leigh-Pemberton, who has a distinguished career
	in the City, as its chairman. I very much hope that the Minister will convey the message that UKFI is well regarded and has a secure future.

Baroness Noakes: My Lords, I will comment briefly on this amendment and will not comment, of course, from the perspective of the Royal Bank of Scotland. I will take your Lordships back to when I first worked at the Treasury, many years ago, when I was on secondment from my firm at the time. That was when there were lots of nationalised industries in the public sector. Worthy civil servants—and worthy Treasury civil servants, too—thought they knew how to manage the relationships between these large, complex, commercial organisations. They did not do it well. It was the right decision, therefore, when the previous Labour Government started to accrete new, substantial holdings in commercial organisations, to set up an arm’s length relationship to professionalise the handling of those organisations and their ultimate disposal, and to recognise, as that Government did at the time, that those holdings were not to be long-term holdings. I criticised the previous Government because it was not set up by statute, but in a shroud of secrecy without proper accountability arrangements in place. I believe, however, that the principle that civil servants are not the right people to manage these complex relationships with sophisticated organisations is the right one.

Lord Turnbull: My Lords, there was a similar organisation set up in my time, the Shareholder Executive. The Shareholder Executive is a body attached to BIS, as it is now called, and it creates a centre of expertise for the management of shareholders. What it does not do is claim to be the decision-maker. It is all very well to have the expertise—we need the expertise—but there is a pretence that decisions relating to RBS and LBG are being taken by UKFI as opposed to being taken by the Treasury on the advice of UKFI. It is a pretence that when it suits you, you can decide, and when it suits you, you can hand it on to someone else.
	At the moment, with the change of leadership in RBS—the noble Baroness, Lady Noakes, may not want to comment on this—we do not know whether that was a decision of the RBS board, UKFI or the Treasury. It ought to be clear who took that decision. You can have an advisory body—in this case, almost an executive body—but not one that claims to be the decision-maker, which is the pretence of the UKFI situation.

Lord Deighton: My Lords, the intention of the amendment is to transfer into HM Treasury the function of managing the Government’s shareholdings, in particular in RBS and Lloyds. As my noble friend Lord Lawson has pointed out, the Chancellor of the Exchequer, in his Mansion House speech in June, has already made it clear that he rejects this particular BCBS recommendation.
	As has been pointed out in a number comments already, UKFI was not a creature set up by this Government; it was set up by the previous Government when they made the initial capital injections into RBS, Lloyds, Northern Rock and Bradford and Bingley,
	with the idea of being able to manage these investments on an arm’s-length commercial basis. So that was the genesis.
	This group works closely with the management of RBS and Lloyds to assure itself of their approach to the strategy and to hold management to account for their performance. RBS and Lloyds are led by their management and board in the interests of all shareholders, including the taxpayer. So, while it may be possible to imagine different arrangements to fulfil these objectives—you can make the arguments and the pros and cons of the different ways of doing it—the current ones work well, as my noble friend Lord Garel-Jones has said, and it would not make sense to change them at this stage. So, just as my noble friend Lord Lawson said it is a simple amendment, there is a simple reason to reject it—it does not make any practical sense. UKFI is working fine and the time and effort it would take to pull it back into the Treasury and to reorient all that work there would distract our efforts on the important work that is currently going on.
	My noble friend Lord Lawson referred to the review at RBS in particular, which we are two-thirds of the way through, and the bad bank/good bank option. I am afraid I am going to disappoint my noble friend. I am not going to tell him what the result is but it will be ready this autumn and we will announce the outcome and the rationale behind it. The matter is being pursued with great urgency and the last thing we want to do at the moment is to destabilise the arrangements for conducting that important analysis, which is really the most important thing.
	I reiterate that UKFI is staffed by some very good top people. I have worked with them and I have seen the work that they do. Frankly, we have been able to recruit top-class people to do this work on our behalf. I can assure the Committee that the Government continue to value the role that they play. It was demonstrated again, as my noble friend pointed out, by the role they played in advising the Chancellor on the successful divestment of 15.5% of the Government’s shareholding in Lloyds at 75p per share. They will carry on looking at the full range of options for RBS and managing the timing of the subsequent tranches of the sale of Lloyds back into private ownership.
	I am grateful to the PCBS and the noble Lord for raising these issues, but the Government consider that UKFI has a vital role to play which it is performing well. I therefore cannot support the amendment and I urge the noble Lord to withdraw it.

Lord Lawson of Blaby: My noble friend will not be surprised to hear that I am wholly unconvinced by his reply; nevertheless I shall please him by withdrawing the amendment.
	Amendment 99 withdrawn.
	Amendment 100 not moved.
	Amendment 101
	 Moved by Lord Eatwell
	101: Before Clause 16, insert the following new Clause—
	“Duty of care
	At all times when carrying out core activities, a ring-fenced body shall—
	(a) be subject to a fiduciary duty towards its customers in the operation of core services; and
	(b) be subject to a duty of care towards its customers across the financial services sector.”

Lord Eatwell: My Lords, Amendment 101 in my name and the names of my noble friends Lord Tunnicliffe and Lord McFall goes to the heart of the change in culture which all of us wish to see in the relationship between banks and their customers, particularly their retail customers. Our objective is for banks to see their relationship with their retail customers as ensuring the financial success and security of those customers as far as may be possible, rather than seeing them as entities from which to make profits. A ring-fenced body should have a fiduciary duty towards its customers in the operation of core services, and a duty of care towards its customers across the financial services sector with respect to other duties.
	Following the passing of the Financial Services and Markets Act 2000, the Financial Services Authority developed the notion that customers should be treated fairly. It did an enormous amount of work developing various rules, instructions and procedures whereby customers would be treated fairly. This was a dismal failure. PPI and the interest rate swap stories demonstrate that beyond all reasonable doubt. This was not a failure because of the failure of the regulators as such and their intentions. They were well intentioned, and they were focused on important issues. It was a failure because the culture of the banks was to see customers as entities with which to trade and from which profits would be made. We need to change that.
	The amendment will put us in tune with developments that have also been perceived to be necessary in the United States, where the SEC now has the authority to impose a fiduciary duty on brokers who give investment advice. It is the same thematic development. A stronger duty of care would ensure that industry has to take customers’ interests into account when designing products and has to provide advice and support throughout the product life cycle, something which has clearly been lacking in recent scandalous events. This will increase consumer protection and help to restore confidence of the retail customer in banks. It will raise standards of conduct because banks will know they are responsible for acting according to these duties.
	I am well aware that there is a general common law responsibility for duty of care, but the importance of this amendment is that the fiduciary duty would be reflected in the activities, responsibilities and powers of the regulators, not simply something enforceable under common law. That is why a fiduciary responsibility akin to that elsewhere in financial legislation, but here expressed generally within the context of the ring-fenced bank, would add significantly not just to consumer protection but to the character, behaviour and culture of ring-fenced banks. I beg to move.

Baroness Noakes: Can the noble Lord, Lord Eatwell, explain how this fiduciary duty and duty of care would be enforced? I think he mentioned a moment ago that it would somehow draw regulators in, but I
	cannot find anything in his amendment that places any corresponding powers or duties on regulators. I cannot see that a duty of care will make any difference whatever if ordinary consumers—ordinary customers of the banks—are expected to litigate personally on the basis of it.

Lord Eatwell: Surely the point is that by establishing a fiduciary duty a regulated entity would be expected to pursue exactly those duties. Therefore a regulated entity or other authorised person would be deemed by the regulator to be required to follow exactly those duties. If the noble Baroness thinks that this is too weak, I will be very happy to bring a stronger duty of care back on Report.

Lord Phillips of Sudbury: My Lords, the noble Lord, Lord Eatwell, asked an extraordinary question because there is no more onerous duty than the fiduciary duty. It is a novel and maybe a highly effective way of dealing with a great many of the concerns that have occupied this House over the last few days in Committee. An important part of the amendment is that the core activities and services are subject to a fiduciary duty, and other services to a duty of care. Given the big difference in responsibility, is it sufficiently clear what is and what is not a core duty?

Lord Eatwell: Core duties are defined in the Bill.

Lord Phillips of Sudbury: I thank the noble Lord.

Lord McFall of Alcluith: My Lords, I will briefly speak in support of this amendment. My noble friend Lord Eatwell spoke of treating customers fairly. I remember, going back to 2002, when the FSA, bless its heart, introduced this to the industry. The FSA told me that it was a hugely uphill struggle. I well remember having a conversation with the chairman of one of the banks, who said to me, “Treating customers fairly? I don’t know what that FSA is up to, because I’ve always treated my customers fairly”. The gap between what the FSA was trying to do and the mentality of some people in the industry was huge. I remember being at a seminar with John Kay, who has written a great article in today’s Financial Times that I have already referred to. He said that a duty of care, if it was imposed on the banks, would be “transformational”. I think he said that for the following reason. There is today an imbalance between the customer and the bank—the term for that is symmetry of knowledge—which has led to many of the scandals.
	Time after time on the parliamentary banking standards commission, when we ask chairmen and chief executives exactly why mis-selling occurred or why the grievous omissions took place in their organisation, they say that they did not know anything about it. There is, therefore, a hiatus between the top and below. One of the amusing aspects of my time as chair of the Treasury Committee was speaking informally to senior executives in the banks who came along to the Treasury Committee and said, “What you did to
	the chairman today was good because it allows us to educate him”—or her, although it is largely him—“about what is happening in the organisation”. A lot of them do not know what is happening. If we had this duty of care, that responsibility would lie at the very top.
	During the deliberations of the parliamentary banking standards commission, I suggested that there should be an annual meeting between the chairmen and chief executives of these institutions, and the regulatory authorities, so that there was a sign-off on how they do their duty and how they serve the interests of their institution and their employees in the wider society. That information is not made public, but at least there is that accountability at the top between the regulator and the chief executive. At present, we do not have that. Having the duty of care would make those at the top much more alive to what is going on in their organisation. I have received evidence in the banking commission, particularly from the lawyers who were advising us, that the term “duty of care” has a specific legal meaning in the law of torts, and tests to establish whether a duty of care exists and whether it has been breached are a fundamental tenet of common law. In the context of banks and their customers, it is not clear what a duty of care would look like in practice. I know that there are huge legal hurdles to overcoming that, but there is a basic, common-sense and moral purpose to the concept of duty of care, and I think it is one that we will refer to again on Report.
	I would like the Minister seriously to consider this amendment and ensure in some way or other that, as the Parliamentary Commission on Banking Standards stated in paragraph 416:
	“Banks need to demonstrate that they are fulfilling a duty of care to their customers, embedded in their approach to designing products, providing understandable information to consumers and dealing with complaints”.

Lord Brennan: My Lords, perhaps I may take up the points raised by the noble Baroness, Lady Noakes. Paragraph (a) of the proposed new clause refers to a “fiduciary duty” by the ring-fenced body. In practical terms that means a duty exercised by, ultimately, the board of directors. The body acts through it. The practical consequences of such a duty, which does not involve enforceability by the regulators, are twofold. First, if the board of a bank breaches its fiduciary duty to customers in this way, it is perfectly reasonable for the shareholders to refuse to indemnify it in respect of any claims made by customers on the basis that it has breached a statutory duty, which could not conceivably be said to have been acting in the shareholders’ interests. That is the first practical consequence. It is a deterrent. Secondly, although I have not checked this yet, I suspect that in the field of commercial insurance you would not be able to get D&O insurance for protection in respect of a fiduciary duty until you have satisfied the insurability test of having acted reasonably and in accordance with commonly accepted standards of probity and good behaviour in the commercial sector. Therefore, the point is answered, I suspect, by practical consequences.

Lord Deighton: My Lords, this amendment is an opportunity to revisit the imposition of fiduciary duties or duties of care on financial services firms. The other
	place debated the same amendment at the Committee and Report stages of this Bill. Of course, no one in this House is going to disagree with the proposition that customers need a better deal from their banks, whether we call it treating customers fairly, having better standards or putting customers first. The Government have been keen, for example, to see more competition between banks as another way of addressing this concern. We all want to see better standards in the banking industry and a return to the days when the customer relationship mattered and the customer came first. We want the leadership of banks to appreciate that it is also in their long-term interests in building successful banking businesses. The Government’s amendments so far, which implement the recommendations of the PCBS, will be an important step in the round in that respect.
	However, I note that the commission did not itself recommend the introduction of either a fiduciary duty or a duty of care. To cut to the chase, the Government do not consider that the introduction of either a fiduciary duty or a duty of care in legislation would help to drive up these standards within ring-fenced banks. First, banks are already subject to a wide range of legal duties. Most obviously, they are subject to contractual obligations to their customers. Any banking relationship or transaction is subject to a contract between the bank and the customer. Of course, a bank is subject to obligations under FiSMA and the regulator’s rules. Further, the Government’s amendment on banking standards rules means that in future senior managers and ordinary employees will also be subject to conduct rules. Therefore, it is not clear that imposing a fiduciary obligation on a bank would add any value. The fiduciary obligation is the kind of obligation that a director owes to a company, or a trustee owes to a beneficiary under a trust. It is an appropriate obligation when one person is acting on behalf of another or dealing with another’s property on their behalf. However, deposits with a bank are not property held on trust, so a fiduciary obligation would have no place in the contractual relationship between a bank and its customer.
	Similarly, it is not clear what a duty of care—

Lord Phillips of Sudbury: I hesitate to interrupt my noble friend at this time of night, but there is an important issue in relation to what he said that needs clarification. He said a couple of times that the relationship between a bank and its customer is a contractual one, and therefore that that was sort of QED. The problem is that until not long ago all banks, in the small print of their contracts, which they knew full well that customers would not read, put material which, had the customers read it, would have led them to not agree the contract. In that situation, the contract said such and such, but the purport was wholly antithetical to the real interests of the customer. How does my noble friend deal with that situation, if he is rejecting the fiduciary concept?

Lord Deighton: It is clear that the essential contractual relationship still exists, regardless of the fine print. It is not clear what a duty of care would add to the existing contractual obligations or regulatory requirements to which the ring-fenced body is subject. The primary
	duty of a ring-fenced bank is to repay its borrowings, such as deposits, when they fall due, in accordance with the terms of its contracts. If a ring-fenced bank does that and complies with its regulatory obligations, such as those relating to ring-fencing or leverage, it is hard to see what a duty of care would do to make it care more for its customers, inside or outside the financial services industry.
	Therefore, the Government firmly believe that it would be better to impose specific and focused requirements, and standards of business, on banks, than to rely on high-level, generic concepts such as a duty of care. Banks can comply more easily with specific requirements. Customers and regulators can more effectively hold to account the banks, and, if appropriate, their senior managers, when they do not comply. Moreover, if our ultimate objective is to improve the deal that customers get from their banks, one of the most effective and direct ways to achieve this is surely by enhancing competition. Banks must be spurred to treat their customers better by the threat of the customers voting with their feet. Through the introduction of the measures in this Bill, including the changes to the regulator’s objectives and powers, and the new payments regulator, we believe that a better deal can be achieved.
	Imposing a duty of care or a fiduciary duty would not give banks or their senior managers a clear understanding of what conduct is expected of them. It would not provide a viable and effective means of holding banks to account, and it would not benefit consumers. Therefore, I hope that the noble Lord will agree to withdraw the amendment.

Lord McFall of Alcluith: On the duty of care, at the present moment if an individual opens a bank account, they get 170 pages of dense text to look through. No one is going to look through that. If a duty of care were imposed, does the Minister not think that banks would look at that again and perhaps fillet a lot of the information, so that the information that went to the customer would be readily understood?

Lord Deighton: I certainly agree with the noble Lord’s observation that sometimes the way in which business is done clearly is not in the interests of the customer. However, the Government do not believe that the duty of care is the right way to address those kinds of problems.

Lord Eatwell: My Lords, that was a very unsatisfactory answer. It was both analytically weak and unsatisfactory in terms of the noble Lord’s argument. Let us first deal with the economics. As the noble Lord well knows, in the face of asymmetric information, competition is not necessarily efficient. He knows that: he learnt that at Cambridge. In those circumstances, to argue simply that competition will be an effective means of establishing a satisfactory relationship between the bank and its customers is simply analytically wrong. We ought to take that into account.
	Then the noble Lord said that there was a series of relationships: contractual duties, the relationships set out in FiSMA and the senior manager regulations.
	The first two of those have existed since 2000. They did not work, so let us not rely on contractual duties which have been there all the time and have been happily beavering away. Did they protect the customer from PPI? No, they did not do that successfully. Did they protect the customer from interest rate swap selling? No, they did not do that either. It is no good relying on these contractual duties or on various elements of treating customers fairly in FiSMA. The senior manager regime, although it stiffens up the responsibilities of managers, does not change the actual structure of the relationship.
	The noble Lord said something towards the end of his reply that was really quite extraordinary. He said that if bankers were told that they had a fiduciary duty and a duty of care, they would not have a clear understanding of what they were required to do. I find that quite astonishing. I have a sense that trustees have a very clear understanding of the fiduciary issue of what they have to do and all these terribly clever bankers ought to be able to suss that out as well. The idea that they do not have a clear understanding is just unbelievable.
	Then the noble Lord said, “But of course, the trustee relationship applies to a situation which is appropriate only when one person is acting for another”. The majority of retail customers who deposit their money in the bank think the bank is going to be operating for them. They think that is what is happening. I know that many bankers therefore regard them as naïve, but that is what people actually believe. That is what we, on this side, believe should actually be the case. The noble Lord then said, “Well, of course, I do agree there should be a duty of care, but it should be specific and focused”. We all know that when you try to make specific lists of issues, the endeavour goes wrong because of the things left off the list. The things that are left off the list are the areas where we will see further consumer scandals appearing.
	It is the responsibility of this Government to protect consumers in this country and to protect bank depositors within ring-fenced banks. It is a responsibility that this Government are clearly shirking. This amendment would provide a significant cultural change within the banking system—a cultural change which is desperately needed. I can assure the noble Lord that we will return to this forcefully on Report. For the moment, I beg leave to withdraw the amendment.
	Amendment 101 withdrawn.
	Amendment 102 not moved.
	Amendment 103
	 Moved by Lord Eatwell
	103: Before Clause 16, insert the following new Clause—
	“Sale of state-owned banking assets
	(1) Before any sale of banking assets in the ownership of HM Treasury, the Treasury shall lay before Parliament a report setting out—
	(a) the manner in which the best interests of the taxpayer are to be protected in connection with such sale;
	(b) the expected impact that any sale might have on competition for the provision of core services, customer choice and the rate of economic growth; and
	(c) an appraisal of the options for potential structural changes in the bank concerned including—
	(i) the separation of the provision of core services from the provision of investment activities,
	(ii) the retention of a class of assets in the ownership of HM Treasury,
	(iii) the impact of any sale on the creation of a regional banking network.
	(2) A copy of the report in subsection (1) shall be laid before Parliament and sufficient time shall be given for the appropriate committees of both Houses of Parliament to consider its findings before any sale decision.”

Lord Eatwell: My Lords, I have commented on a number of occasions that despite all the considerable endeavours since the financial crisis by the Treasury itself, by the FSA as it then was—not by the Bank of England—by the Independent Commission on Banking and now by the parliamentary commission, there has been no significant thought applied to the manner in which the banking system could be fundamentally restructured. All those discussions have taken place within the context of the banking system as it is currently structured. There has been no, let us say, Standard Oil approach to breaking up that company or an AT&T approach to say that there should be some fundamental restructuring of the overall banking system. Instead, we have taken the structure as it is and examined how we can make it work better: for example, by a ring-fence, bail-in clauses, resolution regimes or whatever. The only significant change in the structure of the banking industry—the separation of TSB from Lloyds—was done under the instructions of the European Union. It was not a policy developed here in the UK.
	This amendment does not propose anything dramatic such as a break-up of the larger banks so that they are small enough to fail, but instead says that when there are sales of banking assets which are in Treasury ownership, the Treasury ought at least to go away and think about this. It ought to tell us how the structure of the sale is in the best interests of the taxpayer and think about the impact on competition—I am sure the noble Lord would like that—on customer choice and, indeed, on the rate of economic growth. It ought also to look at the relationship to the ring-fence and whether there might be a development of regional banking, an idea suggested by a number of commentators. All that the amendment seeks is to say, “Let us please have some thought about the overall structure of the banking industry in this respect”.
	We know that the industry consists of entities which are too big to fail. We have one degree of separation with the TSB. There is an endeavour to encourage entry into the banking industry but we all know that it will take a long time for new entities to achieve the scale to be significantly competitive, except perhaps in the occasional niche of the industry. Before we rush further into selling the state-owned banking assets, let us at least consider whether those assets could be used and deployed in a significant restructuring of the banking industry. That would achieve the goals of making the industry more stable and a more effective entity in the overall operation of the UK economy. I beg to move.

Lord Deighton: Noble Lords will know that the Chancellor has already set out at the Mansion House the next stage of the Government’s plan to take the banking system from rescue to recovery. For Lloyds, the Chancellor has taken the first steps to return Lloyds to the private sector and will continue to consider options for further share sales. Value for money for the taxpayer will be the overriding consideration for disposals. There is no pre-fixed timescale for share sales and, given the size of the taxpayer’s stake in Lloyds, the disposal process is likely to involve further multiple stages over time.
	For RBS, however, share sales are still some way off. We discussed this earlier when we debated my noble friend Lord Lawson’s amendment. The Treasury is currently examining the case for creating a bad bank for RBS risky assets. As discussed, this review is still ongoing and will be published later in the autumn. Setting out public options for structural change may be advisable in some cases, as the Chancellor’s announcement of the RBS bad bank review makes clear. However, the Government will need to judge in each case whether to do so, given the risk of generating uncertainty and speculation about likely outcomes.
	Similarly, selling large numbers of shares in the market is a very commercially sensitive matter: for example, in the case of Lloyds. Any communications from government in advance of placing shares could be destabilising and affect the price that the Government get for the shares. Publication of a report as outlined in the proposed amendment could undermine the Government’s ability to sell shares quickly in favourable market conditions. This could significantly reduce value for money for the taxpayer in that case.
	The Government firmly agree that all the topics set out in the amendment need to be carefully considered by any Government in making their decisions relating to the sale of banking assets. UKFI, which we talked about earlier, was established with a very clear emphasis on value for money in executing its core mandate of devising means of exiting the Government’s shareholdings in the banks. In doing so, it is required to pay due regard to the maintenance of financial stability and act in a way that promotes competition.
	The amendment seeks to improve accountability. Many mechanisms already provide accountability. On value for money, the Government are scrutinised against the general principles set out in the Green Book. UKFI is also accountable to Parliament through the Chancellor of the Exchequer, and has a mandate to secure value for money for the taxpayer. Moreover, the Treasury and UKFI are accountable directly, through the accounting officer mechanism, to the National Audit Office and to the Public Accounts Committee. Indeed, UKFI published a report, following the sale of Northern Rock, setting out the rationale for returning the bank to the private sector at that time. The National Audit Office completed a review of the sales process and published a lengthy report on it, which was considered at a session of the Public Accounts Committee.
	The sale of Northern Rock demonstrated the Government’s commitment to transparency on the sale of their banking assets and the ability for bodies such as the National Audit Office and Parliament to
	scrutinise the decisions of government on these matters. Finally, the Government are accountable for their decision to Parliament, including through the Treasury Select Committee and in public debate. Overall, it is not clear what value would be added by this mandatory reporting requirement and it might well be detrimental to the objectives it aims to deliver, particularly to value for money. I hope that the noble Lord will therefore agree to withdraw the amendment.

Lord Turnbull: The first half of a paragraph in the PCBS report asked for a report on the good bank/bad bank option by September: it is going to be a bit late but we are told it is coming soon. The next two or three sentences were on the same subject as the amendment: looking at a wider range of options. Is the Minister telling the House that the Government will fulfil the first half of this PCBS recommendation but not the second half?

Lord Deighton: The Government will announce the conclusions of the good bank/bad bank review and the rationale for why that is the option being pursued. We will be addressing the second half of the undertaking in describing the rationale.

Lord Turnbull: The Government have got to good bank status with RBS. Are they not proposing to do any further analysis on what might happen to the good bank bit that remains?

Lord Deighton: The first thing we have to determine is what we are proposing to do with the good bank/bad bank. Does the split make sense and on what basis does it work? We will subsequently look at what we do with the separate parts.

Lord Eatwell: My Lords, that was not a very satisfactory answer. First, market sensitivity is an extraordinary red herring. Whoever wrote that bit should not be allowed to write any bits again. This is not about market sensitivity: it is about the overall structure of the banking sector and any issues of market sensitivity would, of course, be kept carefully out. Anybody would do that, so it is a really silly argument.
	Turning to the good bank/bad bank story, value for money with respect to the disposal of assets is obviously an important component, but so is the future of the banking industry and its performance in relation to the UK economy as a whole, especially its support of the real economy in the provision of financial services. That aspect does not seem to have been considered. After all, the good bank/bad bank story is essentially a defensive move. It is dealing with a bank which is hampered—or potentially hampered; we will see what the report says—by its current mixture of assets and liabilities, particularly non-performing assets. The good bank/bad bank split is a defensive measure; a device for ensuring that you have an operation in the good bank which we hope can start increasing lending, as the noble Lord, Lord Lawson, said, particularly to the SME sector.
	However, Amendment 103 is asking for something different, which the Minister did not actually address. It is asking for some thought about what the structure
	of the banking industry should look like in future. Are we simply going to repair what we have in the best way we can or do we want something really different? Could progress towards that “something different” be made in the sale of state-owned assets? It seems to me that that was what the noble Lord, Lord Turnbull, was talking about when he referred to the second element of the banking commission’s recommendations. Clearly, this recommendation has not been taken on board by the Government. Perhaps it has simply been overlooked; they might look at it now and think more seriously about it. I am sure that we will be returning to this issue later. In the mean time, I beg leave to withdraw the amendment.
	Amendment 103 withdrawn.
	Amendment 104
	 Moved by Lord Eatwell
	104: Before Clause 16, insert the following new Clause—
	“Portable account numbers
	(1) Within 12 months of the passing of this Act, the Treasury shall lay before Parliament a report considering—
	(a) the adequacy of voluntary arrangements made by UK ring-fenced bodies to facilitate easier customer switching of bank account services; and
	(b) legislative options for the introduction of portable account numbers and sort codes for retail bank accounts provided by UK ring-fenced bodies.
	(2) The Chancellor of the Exchequer may, by affirmative resolution procedure, confer powers upon the appropriate regulator to require UK ring-fenced bodies to comply with any specified scheme to establish the use of portable account numbers and sort codes.”

Lord Eatwell: My Lords, this amendment refers to portable account numbers. I am sure that noble Lords will have read in yesterday’s Financial Times the story about the voluntary endeavour by the banks to increase the possibility of customers switching their accounts from one bank to another. The current switching drive does not include portability of account numbers. As the Financial Times boldly declared:
	“Account switching drive fails to dislodge customers”.
	The general assessment is that the complications associated with the non-portability of account numbers—that is, the complications of changing account numbers—are a significant disincentive to customers to switch their account from one bank to another. This is of course a considerable diminution of competition. The Government have argued very strongly that they are in favour of competition and choice in the retail sector. The noble Lord has repeated that position in discussing some of the amendments that we have already looked at this evening. However, here there is a clear opportunity to increase the possibility of competition in a very concrete way through the portability of account numbers.
	The noble Lord will recall how successful this process has been in the telephone industry. The portability of telephone numbers has very evidently provided a significant competitive boost, which suggests that being able to move a number would increase competition significantly in the banking industry as well. I understand that this would be more difficult within the banking
	industry. For example, the amendment refers specifically to both portable account numbers and sort codes. That makes the issue more difficult because two individuals who bank at different banks may have the same account number but, of course, different sort codes; their entire identification is in the combination of the two. Therefore, a new means of identifying the core bank would have to be developed, and I understand that that would have various knock-on effects.
	However, the idea that this would all cost £5 billion, as has been argued by the banking industry, seems to be vastly overstated. We had the same situation with telephony. We were told that this process was going to cost an enormous amount but, in the end, introducing transferable telephone numbers resulted in a tiny proportion of the costs which the industry had said it would need to incur.
	Therefore, if we are really going to get competition and choice for the consumer, this seems to be a necessary step. The attempt to develop such competition through facilitating switching but without portability has, it seems, failed. Given that, if the Government are really going to put themselves on the side of the consumer in a competitive market, it is their responsibility to require the possibility of portable account numbers. I beg to move.

Lord Newby: My Lords, it goes without saying that the Government are fully behind the objective of increasing competition in banking and making sure that customers who wish to switch banks can do so without impediment. The notion of portable account numbers was considered by the Independent Commission on Banking and in its final report the ICB chose to recommend a new account switching service over portable account numbers. It considered that such a service, if designed correctly, would provide the majority of the same benefits as portability, but with significantly reduced risk and cost.
	The Government acted quickly on this recommendation to secure a commitment from the banking industry to deliver current account switching in two years. This was an ambitious timetable for such a big project, but the banks have met the challenge. The new current account switching service was launched on schedule in September and covers almost 100% of the current account market. It has been designed to meet all the ICB’s criteria for tackling customer concerns over switching and to give customers the confidence they need to make the banks improve their services by ensuring that their customers can vote with their feet.
	However, it is important that the new system delivers on its promises. That is why the Government continue to engage closely with the Payments Council, which has delivered the service on behalf of the industry, on the progress of switching.

Lord McFall of Alcluith: The noble Lord mentioned the Parliamentary Commission on Banking Standards and talked about account portability. But that was not as firm a recommendation as he has suggested, because one of the questions we asked was: why can the banks not allocate an account number that works in the way that mobile telephone numbers do, so that people can swap them around in the same way? The banks replied
	that the IT costs would be too high, but a cursory examination—that is all we did—of the IT aspect indicated that there were legacy problems with the IT. As we have seen with the horrendous examples involving RBS and others, the IT system is in a very poor state. So now is the ideal time to raise our ambitions and ensure that we get for bank customers the portability that telephone customers have.

Lord Newby: My Lords, I did not mention the parliamentary commission; I was referring to the Independent Commission on Banking. None the less, I shall come to the substantive point that the noble Lord has just made.
	As I was saying, to aid transparency we have asked the Payments Council to publish statistics regularly, including switching volumes on a monthly basis and more detailed statistics every quarter, which include data on awareness and confidence in the new service. The Government consider that making this information public is the best way to hold the current account switching service to account. As has been mentioned, the Payments Council has just published the first set of data, covering the four-week period following the switching service becoming fully operational. The numbers show that 89,000 switches were completed—an 11% increase on the 80,000 completed during the same period last year. I am a great fan of the Financial Times, but to describe a scheme that has been running for a month as a failure, when it has already got 9,000 extra people to switch, is clearly complete rubbish.
	Account portability is a more complicated issue. I am not necessarily disagreeing with the noble Lord, Lord McFall, but the only way to make a properly informed assessment as to whether, or how, steps towards portable account numbers should be taken is to conduct a comprehensive analysis. I must say, almost in parenthesis, that I do not believe that the analogy with telephone numbers takes us as far as might appear at first sight. For a start, as an individual I am quite happy if lots of people know my telephone number —but I am very unhappy if anybody knows my bank account details. This means that I have a completely different view about how I want to deal with that account. That is one of a number of different reasons why this is a complicated issue. It is not, however, an issue that the Government have just pushed to one side. We have made a commitment to ask the new payment systems regulator to undertake the comprehensive analysis that is required.
	There has not yet been a proper study of account portability in the UK, but it is clear that operating the payments systems alongside account portability would be one of the significant challenges. That is why we think that the payment systems regulator is the right body to carry out this work. It will have the appropriate expertise and will be able to give an independent view. To be clear, the payment systems regulator will have the powers described in subsection (2) of the proposed new clause. There would be no need to confer new powers on the regulator in order to implement the recommendations of a review. In order to get a complete picture of what benefits account portability could bring, the experience of the current account switching service will need to be fully considered. Therefore, the
	Government expect the success of the switching service to be firmly within the scope of the payment systems regulator’s view of portability. The switching service is new and the regulator is not yet established. In our view, the logical step is to let them both become properly established and bedded in and then have a proper and comprehensive analysis. On the basis of that, a decision can be taken.

Lord Eatwell: The noble Lord just said that the payment systems regulator is going to be asked to do this. What timetable is the regulator going to be given?

Lord Newby: The regulator will be asked to make this one of its top priorities once it has been established, but it is impossible to say at this point that it will have to do it within three or six months. We think that that would be overly prescriptive. However, it is one of the priority tasks that it will be given from its inception.

Lord Eatwell: My Lords, that is why the amendment specifies 12 months. It seems that what the Government are saying is that they are behind the concept of competition but they are not behind the means of making that concept actually work. However, I must say that it is encouraging that the payment systems regulator is being asked to study this matter. It would be more encouraging if we were given some clarity that this will not simply be kicked into touch but will actually be presented to Parliament within a given timescale.
	This is a matter of considerable importance if the Government are serious about competition and giving competitive advantage to consumers. It is therefore a matter to which we must inevitably return. In the mean time, I beg leave to withdraw the amendment.
	Amendment 104 withdrawn.
	Amendment 104A
	 Moved by Lord Sharkey
	104A: Before Clause 16, insert the following new Clause—
	“High-cost credit agreements
	(1) The Secretary of State shall by order provide for each local authority in England and Wales to regulate high cost credit agreements entered into by any person whose registered address for the purpose of obtaining credit is within the area of that authority.
	(2) An order under this section shall—
	(a) set a maximum level for—
	(i) the amount of any loan;
	(ii) the rate of interest that may be charged; and
	(iii) the associated fees that may be levied
	as part of any such agreement;
	(b) limit the number of times and specify the terms on which such an agreement can be rolled over for any individual to whom this section applies; and
	(c) require the lender to demonstrate that the borrower has no outstanding high-cost loans.
	(3) Any local authority choosing not to exercise its powers of regulation once an order is made under this section shall publish a report setting out its reasons for not doing so, and shall make a similar report in each subsequent year in which it chooses not to exercise its powers of regulation.
	(4) For the purposes of this section—
	(a) “high-cost credit agreement” means a regulated credit agreement as defined by section 137C of the Financial Services and Markets Act 2000 (as inserted by the Financial Services Act 2012) that provides for—
	(i) the payment by the borrower of charges of a description from time to time specified by the FCA; or
	(ii) the payment by the borrower over the duration of the agreement of charges that, taken with the charges paid under one or more other agreements which are treated by the FCA’s rules as being connected with it, exceed, or are capable of exceeding, an amount specified by the FCA;
	(b) “charges” means charges payable, by way of interest or otherwise, in connection with the provision of credit under the regulated credit agreement, whether or not the agreement itself makes provision for them and whether or not the person to whom they are payable is a party to the regulated credit agreement or an authorised person;
	(c) “authorised person” has the same meaning as in the Financial Services and Markets Act 2000.
	(5) An order under this section shall be made by statutory instrument subject to approval by resolution of each House of Parliament.”

Lord Sharkey: My Lords, I will briefly argue in favour of four propositions. The first is that payday loan charges are much too high; secondly, that the current action on payday loans, although it is welcome, will not fix the central problem; thirdly, that we already have plenty of evidence for how to fix this problem; and fourthly, it is possible to act now to benefit payday loan customers and there is no need to wait.
	The first proposition is that payday loan charges are much too high, and there is probably no need for me to argue the point extensively in this Chamber. Many Members of the Committee will agree that the scale of the charges amounts to exploitation of the poorest and the most desperate, and perhaps even that these charges are an affront to social justice, or even a sense of common humanity. In fact, there are established markets where the payday loan business flourishes with much smaller charges, of which the United States is a prime example. I shall talk more about the regulatory regime in the United States in a moment.
	The second proposition is that the current action, although it is welcome, will not fix the central problem. The FCA, which will take over regulatory responsibility for the sector in April next year, published a consultation paper earlier this month. The paper noted that:
	“We consider that the high-cost short-term credit sector poses a potentially high risk to consumers in financial difficulty”.
	It put forward five key proposals that would require lenders to,
	“assess the potential for a loan to adversely affect the customer’s financial situation; limit the number of times they can seek payment using a continuous payment authority; limit the number of times a loan can be ‘rolled over’; inform customers about sources of debt advice before refinancing a loan; put risk warnings on loan adverts”.
	All these requirements were broadly welcomed, but there was no proposal to address the very high cost of payday loans themselves. The FCA confined itself to saying only that:
	“After we start regulating consumer credit, our supervision teams will consider firms’ fees and charges practices to decide if we need to intervene further”.
	That was it, but it is these fees and charges that are the cause of the present hardship and difficulty. Why wait until next April? The charges are obviously too high. They are lower elsewhere, and they could be lower here, too.
	My third proposition is that we already have plenty of evidence about how to fix the high charge problem. I have heard it said that, in fact, self-regulation by payday loan lenders is the best way forward. Quite apart from the fact that it is difficult to see this bringing down costs, the evidence at the moment is that self-regulation is not working. Earlier this month, BIS published a large-scale and comprehensive review of how well the payday loan industry had been complying with its revised July 2012 customer charter and codes of practice. What BIS found was this:
	“Overall, the results of the survey show that 9 months after the industry said they would comply fully with the charter and the improved codes of practice, self-regulation is not working effectively and compliance with key provisions is not good enough … lenders appear to fall down significantly in meeting the requirements … overall in relation to rollovers, Continuous Payment Authority (CPA) and the treatment of customers in financial difficulty”.
	I have also heard it frequently said that putting a cap on payday loan costs would drive borrowers into the arms of loan sharks. In fact, this seems to be put forward as the only serious objection to a cap. The Bristol University study of March this year is often cited in support of it. This is just wrong. The Bristol study does not conclude that a cap would drive people to loan sharks. What it says is that a cap may cause access to credit to reduce, particularly for low-income, rather vulnerable customers. Then it explicitly says,
	“if customers could not access short-term loans, most would either go without or turn to a friend or relative for help. A small number would try and borrow from somewhere else, including from another short-term lender. Using an illegal lender was not an option that the vast majority of customers in the Consumer Survey would currently consider”.
	There is no compelling evidence, nor even any marginally credible evidence, that a cap on costs will drive people to illegal lenders. If there is no such evidence, why do we not act now?
	That brings me to my fourth proposition, that it is possible to act now, to the great benefit of payday loan customers. The evidence for this can be found in the United States, where there is a long-established set of regulating systems which cap costs. They control rollovers and restrict loan periods. All this happens without destroying the market for payday loans. In the US, payday loan regulation is a matter for individual states and 41 of them have some regulation in place. In three states and in the district of Columbia payday lending is prohibited. In 26 states, borrowing is limited to $600 or less. There is a range of permitted interest rates; 17 states limit interest to 15% or less.
	The recent House of Commons Select Committee report on debt management recommended that the Government studied Florida to see what lessons could be learnt for UK regulation. That is because there is a very great deal to learn from what happened in Florida. Florida has 19 million residents. New payday lending regulation was introduced in 2001. The state limits loans to $500. The interest rate is 10%. No single
	transaction fee may be more than $10. Rolling-over is banned. Loans are restricted to a maximum of 31 days. There is a mandatory cooling off period between loans. Critically, there is a real-time database paid for by the lenders. This database prevents any borrower taking out multiple loans at the same time.
	This has had dramatic results. There is still a flourishing payday loan market in Florida. There were 7 million loans in 2009-10, but not a single loan was extended beyond contract for an additional fee. More than 90% of borrowers repaid within 30 days of the due date and 70% paid on time. The levels of consumer complaint of mis-selling and over-indebtedness had dropped dramatically. Complaints about high interest rates have all but disappeared. Not one loan issued in 2011 violated the regulations. Not one borrower was indebted for more than $500 at any given time.
	All the information technology for doing this in the UK exists already. All that is missing is the regulation and, perhaps, the will. However, if we do not act now or very soon, the problem will get worse. More people will find themselves paying huge charges on small loans. The payday loan business continues to grow very fast. For Wonga alone, lending rose 68% in the last reported year. The UK is seen by investors to have huge potential growth in payday lending. JMP Securities, an American investment bank, predicts that UK payday lending volumes and fees will grow by 212% and 246% between 2010 and 2016. We need to act now. If we wait for the FCA to look at costs, if we wait for the Competition Commission to report, we will have allowed many thousands more people to suffer these appallingly high charges. We will have allowed them to do so entirely unnecessarily. That is what my amendment seeks to prevent.
	The amendment would give local authorities the power to set a maximum amount for a loan, to set the total cost that may be charged for a loan, to limit the number of times and the terms on which a loan may be rolled over, and to limit borrowers to one outstanding loan at any given time. This is all modelled very closely on the Florida regulations, with local authorities substituted for states, on the grounds that they are more likely to properly assess local conditions and needs than the FCA.
	High-cost and short-term credit oppresses the least well off and the most financially desperate. To charge so much is wrong, morally and socially, and we do not need to allow it to continue. The amendment would put a stop to it. I beg to move.

Lord Eatwell: My Lords, I am delighted that the Liberal Democrats are coming behind the proposals developed by my noble friend Lord Mitchell. I hope they acknowledge his success in having the various clauses limiting payday loans and high-cost credit agreements inserted during the passage of the Financial Services Act 2012.
	Given that that Act is now in place and the measures advanced by my noble friend Lord Mitchell are on the statute book, the argument of the noble Lord, Lord Sharkey, as I understand it, is about why nothing is happening and why there is a lack of movement towards getting appropriate regulation in place. If he is indeed
	correct that things are moving so slowly—I have no reason to believe that he is not—the Government owe him an explanation as to why that is the case. Obviously, one is sympathetic to getting my noble friend Lord Mitchell’s measures going as fast as possible, but I have a couple of questions about the amendment.
	First, do we really feel that there is a simple read-over between state government in the United States and a local authority in the UK? It seems that we pile responsibilities on local authorities without giving them sufficient funding, in many cases, to fulfil their responsibilities. I do not see that the amendment provides for any resources to go to local authorities to enable them to do the job.
	Secondly, as far as I understand it, quite a lot of payday lending is done online. The amendment will do absolutely nothing to address loans that are made online because it is all geographically defined. A payday lender may have a registered address but that may have absolutely nothing to do with the location of the customers of that payday lender. The disjuncture between the registered address and the location of the customers suggests that knowledge of local needs would not necessarily be very relevant in such a case.
	I am very sympathetic to the need to get things moving and look forward to the Government telling noble Lords how energetic they are being and giving us some concrete evidence of how my noble friend Lord Mitchell’s measures are being effectively brought into being. I would also like the Government to consider whether the noble Lord, Lord Sharkey, has, with the notion of the local authority—or indeed any other authority—identified a means of getting things moving more quickly.

Lord Newby: My Lords, the Government wholeheartedly agree with my noble friend that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. As noble Lords have pointed out, the Government fundamentally reformed the regulatory system governing these lenders to protect borrowers by transferring the regulation of consumer credit to the Financial Conduct Authority in the Financial Services Act 2012.
	The FCA takes up this new regulatory responsibility on 1 April but has already demonstrated that it is serious about cracking down on high-cost lenders. It is absolutely unfair on it to say that nothing has happened since the Act was passed last year.
	On 3 October, as the noble Lord, Lord Sharkey, has pointed out, the FCA set out an action plan on high-cost lending to protect consumers, with tough new rules covering a number of issues including a limit on rollovers and restricting the use of continuous payment authorities. These proposals have won widespread support and will profoundly change how this industry operates. I completely agree with the noble Lord, Lord Sharkey, that self-regulation has failed, but the industry is not going to be self-regulated any more.
	Turning now to the noble Lord’s amendment specifically, I am surprised that he thinks that local authorities should be given additional responsibility for regulating high-cost lenders. I can see why it might work in the States, and having looked at the Florida
	scheme I completely agree that it has been an extremely successful scheme there. I hope that there are a number of additional elements of that scheme that might, in time, be introduced into the UK. However, I frankly cannot see the case for duplicating regulatory effort within such a small geographic area of the UK, especially as consumers will find this confusing. Nor can this be considered a good use of public funds, given that the FCA, which is fully funded by the industry, already has this responsibility.
	Most payday lenders have a national reach, especially the biggest players which dominate the market and, by definition, those which are online, so it does not make sense to permit scores of local authorities, in addition to the FCA, to all regulate the same lender. We believe that a well-resourced and empowered single national regulator will provide the best outcome for consumers. Consumers will be better protected by having a regulator with the resources, expertise and national consistency of the FCA. I am not convinced of the benefits for consumers of a federal approach to regulation. In fact, this could lead to more consumer harm; payday lenders are more likely to target consumers in local authority areas where the authority is less active.
	The nub of the amendment is, of course, that the noble Lord has framed it to ensure that the Secretary of State imposes a cap on the cost of high-cost credit. While I entirely support the noble Lord’s ambition to bring down the cost of such loans, I am not convinced that the best way to do that is via a mandatory cap. The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit.
	The noble Lord has referred to the work commissioned by the Government from the University of Bristol. It does not, as he says, say that the main arguments against a cap on the rate relates to loan sharks. It does point out that although that may happen in some cases, lenders may try to bypass the cap by introducing other charges or fees which are not subject to it. Evidence shows that, with a cap in place, lenders may be less likely to show understanding if customers get into repayment difficulties.
	While the Government are not convinced that a mandatory cap is the best overall solution for consumers now, they have made it clear that the FCA has a specific power to impose a cap in future, should it decide that it is needed to protect consumers. The FCA has already committed to start analysis on use of this power from April 2014.
	Capping the cost of credit is a major intervention with potentially profound consequences for consumers, so it is right that the FCA contemplates use of this power in a responsible and evidence-based way, which is what it will now do. Noble Lords should not be in any doubt about the FCA’s commitment to using its powers to protect consumers whenever it feels it is necessary. The Government stand ready to support the FCA to ensure the best overall outcome for consumers.
	I know it is extremely frustrating that we have not got a comprehensive solution in place, but the Government have moved with considerable alacrity in setting up a new, effective regulatory framework. The regulator has
	acted quickly to set out proposals and on that basis, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Sharkey: I am happy to acknowledge the achievements of the noble Lord, Lord Mitchell. As the noble Lord, Lord Eatwell, may know, when I spoke to the noble Lord, Lord Mitchell, about my amendment, he said that, if he could, he would be happy to speak in support—qualified support, no doubt.
	The question of local authorities is a red herring. I would happily trade off local authorities for the FCA if the Government would agree to the substance of the amendment. I do no intend to pursue the notion or the comments that have been made about local authorities by the noble Lord, Lord Eatwell, and my noble friend the Minister.
	I am puzzled by the notion of there not being sufficient evidence to introduce a cap. I am hard put to understand how the situation in the United States—we mentioned only Florida but there are 17 other states with low interest rate caps; these systems work well—does not constitute something close to entirely sufficient evidence. I note in passing that Australia introduced the same system last year and there is evidence available from there as well. I also note in passing that this issue about payday lenders being able to avoid any cap by writing in additional charges is explicitly dealt with in the regulations that exist in Florida and the other states that cap these things. It is the total cost of any charges connected in any way with the loan that is capped; it is not just the interest rate.
	I listened carefully to what my noble friend the Minister said and I will read it carefully again tomorrow morning. If we can dismiss the notion of local authorities for the moment, there may be merit in returning to this issue and of getting something done more quickly than April and afterwards so that we do not continue to have people taking on these loans at appalling costs. There may be merit in returning to that on Report but in the mean time I beg leave to withdraw.
	Amendment 104A withdrawn.
	Amendment 104B
	 Moved by Lord McFall of Alcluith
	104B: Before Clause 16, insert the following new Clause—
	“Restriction on disclosure of confidential information by FCA, PRA etc
	In section 348 of FSMA 2000 (restriction on disclosure of confidential information by (FCA, PRA) etc), after subsection (4)(b) insert—
	“(c) it is made available, without imposing any requirement of confidentiality, to a consumer (as defined in section 425A), or to a person imitating a consumer, or to persons who include consumers;”.”

Lord McFall of Alcluith: My Lords, while many aspects of competition, culture and behaviour in the industry are addressed by the Financial Services (Banking Reform) Bill, these amendments focus on the lack of transparency and public disclosure of poor products,
	practices, individuals and institutions, which remains unaddressed. The focus of these amendments is to open up this aspect of transparency. The amendments would enable the FCA to publish the instructions it gives to firms when it finds that consumers have been unfairly treated. It would improve the accountability of the regulator and of the regulated firms.
	Most people are agreed that the FSA was not a transparent regulator. Indeed, in 2009, when the Treasury Select Committee investigated the treatment of customers in mortgage arrears, it concluded that,
	“the balance between disclosure to the public and the need to protect firms before they have been found guilty of wrongdoing may have tilted too far towards the interests of the industry”.
	More importantly, Section 348 of FiSMA placed a blanket prohibition on the FSA publishing information received from firms without the firms’ permission. The question has to be asked: are any banks going to voluntarily agree to the publication of their poor practice? I would suggest that is highly unlikely.
	I will give one example. In the case of PPI, HFC Bank was fined by the FSA in 2007 for mis-selling of PPI. It issued instructions about the steps the bank needed to take to contact customers and review its previous conduct. However, when consumer groups asked for full details of the instructions, the answer given was that the instructions issued by the FSA contained information from HFC and the FSA was therefore prohibited from disclosing them by Section 348 of FiSMA.
	This amendment empowers the FCA to release the instructions given to firms. Genuinely confidential information still will be protected, but the regulator will no longer be able to use Section 348 as an excuse for not disclosing the instructions it gives to firms. There are safeguards for firms, requiring the regulator to consult firms on the notice it will issue and to take account of their representations. Indeed, when the managing director of supervision at that time, Jon Pain of the FSA, appeared before the Commons Treasury Committee in March 2010, he was asked if he would like to have the ability to publish names of firms to which the FSA has sent a warning notice on disciplinary process. He said that that process struck the right balance between transparency and process.
	The FSA itself would like that facility to be looked at. Indeed, when the Parliamentary Commission on Banking Standards looked into it, we stated that:
	“Amendment of Section 348 … is likely to be required to facilitate the publication of appropriate information about the quality of service and price transparency.”
	The amendment argues that the definition of “confidential information” should be modified to exclude firm-specific results of mystery-shopping exercises and thematic work. That would prevent consumers being kept in the dark and ensure that firms are not able to get away with not treating their customers fairly without suffering any practical penalty.
	The definition should also be modified to exclude price data for certain markets, such as annuities—a very hot topic at the moment—which would make it easier for consumers to shop around to get the best rate and spot when they are getting a bad deal. It would also assist consumer organisations in warning consumers about products to avoid.
	Complaints data for individual firms should also be excluded, which would allow the FCA to react swiftly to emerging problems by disclosing specific information about individual product areas to consumers. The legacy of mis-selling which exists happened because of a lack of speed in telling consumers and ensuring that individual companies undertook the remedies which the then FSA asked them to undertake.
	If the definition also excluded enforcement activity against firms, that would allow for greater regulatory transparency. That must include the FCA publishing information on the number of cases referred to enforcement, broken down by subject—including product and practice involved—and industry sector; the outcome of cases, including how many resulted in a fine, public censure or were dealt with informally; and the names of firms and individuals involved in cases.
	As I said on an earlier amendment, the balance is tilted too much towards the industry. The asymmetry of knowledge is in the industry’s favour. This amendment would help redress that by improving transparency. I ask the Minister to consider the long-standing commitment that I have had to that.

Lord Eatwell: My Lords, my noble friend has made a very strong case. He needed to add one other element to persuade the Government, which is that this would enhance competition. If one improved information in this way, then, given the enhancement of consumer choice, the competitive objective of the Government would be better served. This would be a diminution of some of the severe problems of asymmetric information that distort competition in financial services, especially retail financial services. If it was developed with care it would be a considerable boost to the overall efficiency of retail financial services in this country.
	It is very easy to say, “The time is not ripe; it is not really quite the time; there are unintended consequences”. All that is required is a consistent bias towards transparency. The Government should approach this issue by saying, “In principle, we are in favour of transparency”. The argument should be made for not being transparent. In other words, the strong case has to be made for not revealing something. The fundamental prejudice should be that this information should be transparent. Effective transmission of information is a key element in creating an efficient market and enhancing the competitive goal that the Government claim to be their own.

Lord Newby: My Lords, as the noble Lord, Lord McFall, pointed out, we debated this issue at great length during proceedings on the previous Financial Services Bill. Sections 348 and 349 of FiSMA govern the treatment of confidential information obtained by the regulators and the ability of the regulators to disclose such confidential information. The noble Lord argued at the time, and repeated today, that there was inadequate transparency and insufficient disclosure of information in the financial services regulatory regime. This led to the argument that Section 348 should be amended to make it as unrestricted as possible.
	In response, the Treasury undertook a careful review of Section 348 and its associated provisions. The review concluded, first, that it would be difficult to amend
	Section 348 without negative consequences. Scaling back Section 348 would increase the risk that firms would become less willing to share information with the regulators, undermining those important relationships and the regulators’ ability to protect consumers. Secondly, even with Section 348 in place, the FCA could and should do more to increase transparency.
	With that in mind, the Government decided at the time not to amend or delete Section 348 but agreed with the FSA, as it then was, for it to carry out a fundamental review of how transparency would be embedded in the new FCA regime. This was published as a consultation in April of this year and received positive feedback from consumer groups—that is, the very people the new or changed approach was intended to benefit. The review covered use of disclosure as a regulatory tool by the regulator, disclosure of information by firms, both voluntarily and as a result of FCA rules, and transparency on the part of the regulator.
	In terms of publishing details of enforcement action, the FCA is already required to publish details and information about decisions and final notices that it considers appropriate. It can also publish the fact that a warning notice has been issued in respect of disciplinary action. In response to the recent PCBS recommendation that it should require firms to publish more information, the FCA has outlined its plans to issue a call for evidence next year on data that it should require firms to publish to help consumers better understand the firm and product quality.
	I hope the noble Lord will agree that this is exactly what the PCBS was seeking to achieve and that it can be done without further amendment to Section 348.

Lord McFall of Alcluith: My Lords, again the Government’s response is a little timid. However, the hour is late. It is an appropriate time to say, “Mañana” and we will fight it another day.
	Amendment 104B withdrawn.
	Amendments 104C and 104D not moved.
	Amendment 104E
	 Moved by Lord Turnbull
	104E: Before Clause 16, insert the following new Clause—
	“Definition of “bank”
	(1) In sections (Meetings between regulators and bank auditors, Leverage ratio, Proprietary trading, Remuneration code, Powers of regulator where Bank receiving State support, Special measures, and Regulatory accounts) “bank” means a UK institution which—
	(a) has permission under Part 4A of FSMA 2000 (permission to carry on regulated activities) to carry on the regulated activity of accepting deposits; or
	(b) is an investment firm within the meaning of that Act (see section 424A of that Act).
	(2) But “bank” does not include an insurer.
	(3) In this section—
	(a) “UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom;
	(b) “insurer” means an institution which is authorised under this Act to carry on the regulated activity of effecting or carrying out contracts of insurance as principal.
	(4) Subsections (1)(a) and (3)(b) are to be read in accordance with section 22, taken with Schedule 2 and any order under section 22.”

Lord Turnbull: My Lords, this is an amendment to which we have returned on a number of occasions and which is quite fundamental to the Bill. It raises the question of what is a bank and defines who comes within the scope of the various regimes, sanctions, penalties, or whatever. There was a feeling when we last discussed this that defining a bank around whether it took deposits was too narrow and that there could be people who could conduct, for example, trading activities without taking deposits and who ought to be subject to the senior managers’ regime, the criminal sanction or the remuneration regime.
	The amendment is an attempt to widen that scope. It was tabled before the letter dated the 22 October from the noble Lord, Lord Newby, to the noble Lord, Lord Eatwell, with its offer to set out a note. I think that that will probably deal with the question. I do not think that there is any real difference between us about what we want to cover. We want to make sure that we are covering not only ring-fenced banks but people running major investment bank trading operations, whether they be domestic, such as BarCap, or UBS or whatever.

Lord Eatwell: Perhaps I can be of help to the noble Lord. I do not know whether he has had the opportunity to see the Bank of England response to the final report published today, where the Bank of England provides the answer which the noble Lord, Lord Newby, was unable to provide. It says:
	“For the present, the Government’s legislative proposals in this area will apply only to deposit takers”—

Earl Attlee: My Lords, we are slightly out of order because the noble Lord has not moved his amendment and started the debate. Perhaps the noble Lord would like to finish moving his amendment.

Lord Turnbull: I thought that I had started by begging to move Amendment 104E, but if I have not I shall do so now, and if that allows the noble Lord, Lord Eatwell, to offer his clarification I should be very grateful. I beg to move.

Lord Eatwell: I usually try to be difficult. When I try to be helpful I am stopped. I was referring to the Bank of England response, published today, in which it says that,
	“the Government’s legislative proposals in this area”—
	this is referring to the senior persons regime which we talked about last time—
	“will apply only to deposit takers but not to investment banks and insurance companies”.
	So the Bank of England is clear that both the senior persons regime and, I presume, also the offences issue—for which I remember the same issue arose as to the definition of a bank—do not apply to investment banks.

Lord Turnbull: My response to that is that it is completely unsatisfactory. We shall need to come back to it. I hope that there can be some discussion, maybe with officials in the Bill team. I am not satisfied that applying these various provisions simply to deposit takers covers all the areas of conduct that really need to be covered.
	One other issue came to light in the course of this evening’s discussions about the remuneration regime. The noble Lord, Lord Newby, read out a list of people who are covered. Those are the people who are covered by the current remuneration regime. What was being proposed in my amendment was in effect a senior tier particularly for banking. Once you do that, you have to find a definition of a bank. I thought that we were a bit nearer to getting an answer until I heard from the noble Lord, Lord Eatwell. It is something we need to sort out, otherwise we shall find a serious area of misconduct in an investment banking area only to be told that when we legislated we forgot to cover these kinds of people. That would be completely unacceptable.

Lord Newby: My Lords, I thought that I read out virtually verbatim last week what the noble Lord has read out from the Bank of England. We are going to confirm that in a letter. However the most important point is the one that the noble Lord, Lord Turnbull, raised about the scope of the senior managers regime and the criminal offence that goes with it. I can confirm now what I attempted to say last time, that my Treasury colleagues are considering the scope of the new regime and of the new criminal offence of reckless misconduct in the management of a bank in the light of the previous debate. I can assure the House that they take your Lordships’ views extremely seriously.

Lord Turnbull: I infer that I should pay more attention to the letter of the noble Lord, Lord Newby, of 22 October than I should pay to the Bank of England’s response, because I think the former is a more constructive response than that of the Bank of England. On that basis, I beg leave to withdraw Amendment 104E.
	Amendment 104E withdrawn.
	Clause 16 agreed.
	Amendment 105
	 Moved by Lord Newby
	105: Before Schedule 2, insert the following new Schedule—
	ScheduleBail-in stabilisation optionPart 1Amendments of Banking Act 2009
	1 The Banking Act 2009 is amended as follows.
	New stabilisation option: bail-in
	2 After section 12 insert—
	“12A Bail-in option
	(1) The third stabilisation option is exercised by the use of the power in subsection (2).
	(2) The Bank of England may make one or more resolution instruments (which may contain provision or proposals of any kind mentioned in subsections (3) to (6)).
	(3) A resolution instrument may—
	(a) make special bail-in provision with respect to a specified bank;
	(b) make other provision for the purposes of, or in connection with, any special bail-in provision made by that or another instrument.
	(4) A resolution instrument may—
	(a) provide for securities issued by a specified bank to be transferred to a bail-in administrator (see section 12B) or another person;
	(b) make other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another resolution instrument or otherwise).
	(5) A resolution instrument may set out proposals with regard to the future ownership of a specified bank or of the business of a specified bank, and any other proposals (for example, proposals about making special bail-in provision) that the Bank of England may think appropriate.
	(6) A resolution instrument may make any other provision the Bank of England may think it appropriate to make in exercise of specific powers under this Part.
	(7) Provision made in accordance with subsection (4) may relate to—
	(a) specified securities, or
	(b) securities of a specified description.
	(8) Where the Bank of England has exercised the power in subsection (4) to transfer securities to a bail-in administrator, the Bank of England must exercise its functions under this Part (see, in particular, section 48V) with a view to ensuring that any securities held by a person in the capacity of a bail-in administrator are so held only for so long as is, in the Bank of England’s opinion, appropriate having regard to the special resolution objectives.
	(9) References in this Part to “special bail-in provision” are to provision made in reliance on section 48B.
	12B Bail-in administrators
	(1) The Bank of England may, in a resolution instrument, appoint an individual or body corporate as a bail-in administrator.
	(2) A bail-in administrator is appointed—
	(a) to hold any securities that may be transferred or issued to that person in the capacity of bail-in administrator;
	(b) to perform any other functions that may be conferred under any provision of this Part.
	(3) The Bank of England may appoint more than one bail-in administrator to perform functions in relation to a bank (but no more than one of them may at any one time be authorised to hold securities as mentioned in subsection (2)(a)).
	(4) Securities held by a bail-in administrator (in that capacity, and whether as a result of a resolution instrument or otherwise) are to be held in accordance with the terms of a resolution instrument that transfers those, or other, securities to the bail-in administrator.
	(5) For example, the following provision may be made by virtue of subsection (4)—
	(a) provision that specified rights of a bail-in administrator with respect to all or any of the securities are to be exercisable only as directed by the Bank of England;
	(b) provision specifying rights or obligations that the bail-in administrator is, or is not, to have in relation to some or all of the securities.
	(6) A bail-in administrator must have regard, in performing any functions of the office, to any objectives that may be specified in a resolution instrument.
	(7) Where one or more objectives are specified in accordance with subsection (6), the objectives are to be taken to have equal status with each other, unless the contrary is stated in the resolution instrument.
	(8) See sections 48I to 48K for further provision about bail-in administrators.”
	3 After section 8 insert—
	“8A Specific condition: bail-in
	(1) The Bank of England may exercise a stabilisation power in respect of a bank in accordance with section 12A(2) only if satisfied that the condition in subsection (2) is met.
	(2) The condition is that the exercise of the power is necessary, having regard to the public interest in—
	(a) the stability of the financial systems of the United Kingdom,
	(b) the maintenance of public confidence in the stability of those systems,
	(c) the protection of depositors, or
	(d) the protection of any client assets that may be affected.
	(3) Before determining whether that condition is met, and if so how to react, the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.
	(4) The condition in this section is in addition to the conditions in section 7.”
	Further provision about the bail-in option
	4 After section 48A insert—
	“Bail-in option
	48B Special bail-in provision
	(1) “Special bail-in provision”, in relation to a bank, means any of the following (or any combination of the following)—
	(a) provision cancelling a liability owed by the bank;
	(b) provision modifying, or changing the form of, a liability owed by the bank;
	(c) provision that a contract under which the bank has a liability is to have effect as if a specified right had been exercised under it.
	(2) A power to make special bail-in provision—
	(a) may be exercised only for the purpose of, or in connection with, reducing, deferring or cancelling a liability of the bank;
	(b) may not be exercised so as to affect any excluded liability.
	(3) The following rules apply to the interpretation of subsection (1).
	1. The reference to cancelling a liability owed by the bank includes a reference to cancelling a contract under which the bank has a liability.
	2. The reference to modifying a liability owed by the bank includes a reference to modifying the terms (or the effect of the terms) of a contract under which the bank has a liability.
	3. The reference to changing the form of a liability owed by the bank, includes, for example—
	(a) converting an instrument under which the bank owes a liability from one form or class to another,
	(b) replacing such an instrument with another instrument of a different form or class, or
	(c) creating a new security (of any form or class) in connection with the modification of such an instrument.
	(4) Examples of special bail-in provision include—
	(a) provision that transactions or events of any specified kind have or do not have (directly or indirectly) specified consequences or are to be treated in a specified manner for specified purposes;
	(b) provision discharging persons from further performance of obligations under a contract and dealing with the consequences of persons being so discharged.
	(5) The form and class of the instrument (“the resulting instrument”) into which an instrument is converted, or with which it is replaced, do not matter for the purposes of paragraphs (a) and (b) of rule 3 in subsection (3); for instance, the resulting instrument may (if it is a security) fall within Class 1 or any other Class in section 14.
	(6) The following liabilities of the bank are “excluded liabilities”—
	(a) liabilities representing protected deposits;
	(b) any liability, so far as it is secured;
	(c) liabilities that the bank has by virtue of holding client assets;
	(d) liabilities with an original maturity of less than 7 days owed by the bank to a credit institution or investment firm;
	(e) liabilities arising from participation in designated settlement systems and owed to such systems or to operators of, or participants in, such systems;
	(f) liabilities owed to central counterparties recognised by the European Securities and Markets Authority in accordance with Article 25 of Regulation (EU) 648/2012 of the European Parliament and the Council;
	(g) liabilities owed to an employee or former employee in relation to salary or other remuneration, except variable remuneration;
	(h) liabilities owed to an employee or former employee in relation to rights under a pension scheme, except rights to discretionary benefits;
	(i) liabilities owed to creditors arising from the provision to the bank of goods or services (other than financial services) that are critical to the daily functioning of the bank’s operations.
	(7) The following special rules apply in cases involving banking group companies—
	(a) a liability mentioned in subsection (6)(d) is not an excluded liability if the credit institution or investment firm to which the liability is owed is a banking group company in relation to the bank (see section 81D);
	(b) in subsection (6)(i) the reference to creditors does not include companies which are banking group companies in relation to the bank.
	48C Meaning of “protected deposit”
	(1) A deposit is “protected” so far as it is covered by the Financial Services Compensation Scheme.
	(2) A deposit is “protected” so far as it is covered by a scheme which—
	(a) operates outside the United Kingdom, and
	(b) is comparable to the Financial Services Compensation Scheme.
	(3) If one or both of subsections (1) and (2) apply to a deposit, the amount of the deposit “protected” is the highest amount which results from either of those subsections.
	(4) In subsections (1) and (2) and section 48B(6)(a), “deposit” has the meaning given by article 5(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), but ignoring the exclusions in article 6.
	48D General interpretation of section 48B
	(1) In section 48B—
	“client assets” means assets which the bank has undertaken to hold on trust for, or on behalf of, a client;
	“contract” includes any instrument;
	“credit institution” means any credit institution as defined in Article 4.1(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, other than an entity mentioned in Article 2.5(2) to (23) of Directive 2013/36/EU of the European Parliament and of the Council;
	“designated settlement system” means a system designated in accordance with Directive 98/26/EC of the European Parliament and of the Council (as amended by Directives 2009/44/EC and 2010/78/EU);
	“employee” includes the holder of an office;
	“investment firm” means an investment firm as defined in Article 4.1(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council that is subject to the initial capital requirement specified in Article 28(2) of Directive 2013/36/EU of the European Parliament and of the Council;
	“pension scheme” includes any arrangement for the payment of pensions, allowances and gratuities;
	“secured” means secured against property or rights, or otherwise covered by collateral arrangements.
	(2) In subsection (1)—
	“assets” has the same meaning as in section 232(4) (ignoring for these purposes section 232(5A)(b));
	“collateral arrangements” includes arrangements which are title transfer collateral arrangements for the purposes of section 48.
	(3) For the purposes of section 48B(6)(h), a benefit under a pension scheme is discretionary so far as the employee’s right to the benefit was a result of the exercise of a discretion.
	48E Report on special bail-in provision
	(1) This section applies where the Bank of England makes a resolution instrument containing special bail-in provision (see section 48B(1)).
	(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision has been made in the case of the liabilities concerned.
	(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
	(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
	(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and
	(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.
	(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
	(6) A report must be made as soon as reasonably practicable after the making of the resolution instrument to which it relates.
	(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.
	48F Power to amend definition of “excluded liabilities”
	(1) The Treasury may by order amend section 48B(6) by—The Treasury may by order amend section 48C or 48D.
	(a) adding to the list of excluded liabilities;
	(b) amending or omitting any paragraph of that subsection, other than paragraphs (a) to (c).
	(3) The powers conferred by subsections (1) and (2) include power to make consequential and transitional provision.
	(4) An order under this section—
	(a) must be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
	(5) The Treasury must consult before laying a draft order under this section before Parliament.
	48G Priority between creditors
	(1) The Treasury may, for the purpose of ensuring that the treatment of liabilities in any instrument that contains special bail-in provision is aligned to an appropriate degree with the treatment of liabilities on an insolvency, by order specify matters or principles to which the Bank of England is to be required to have regard in making any such instrument.
	(2) An order may, for example, specify the insolvency treatment principles (as defined in section 48E(4)) or alternative principles.
	(3) An order may specify the meaning of “insolvency” for one or more purposes of the order.
	(4) An order may amend sections 44C(4) and 48E(4).
	(5) An order —
	(a) is to be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
	48H Business reorganisation plans
	(1) A resolution instrument may require a bail-in administrator, or one or more directors of the bank, to—
	(a) draw up a business reorganisation plan with respect to the bank, and
	(b) submit it to the Bank of England within the period allowed by (or under) the instrument.
	(2) “Business reorganisation plan” means a plan that includes—
	(a) an assessment of the factors that caused Condition 1 in section 7 to be met in the case of the bank,
	(b) a description of the measures to be adopted with a view to restoring the viability of the bank, and
	(c) a timetable for the implementation of those measures.
	(3) Where a person has submitted a business reorganisation plan to the Bank of England under subsection (1) (or has re-submitted a plan under subsection (4)), the Bank of England—
	(a) must approve the plan if satisfied that the plan is appropriately designed for meeting the objective mentioned in subsection (2)(b);
	(b) must otherwise require the person to amend the plan in a specified manner.
	(4) Where the Bank of England has required a person to amend a business re-organisation plan, the person must re-submit the amended plan within the period allowed by (or under) the resolution instrument.
	(5) Before deciding what action to take under subsection (3) the Bank of England must (for each submission or re-submission of a plan) consult—
	(a) the PRA, and
	(b) the FCA.
	(6) A business reorganisation plan may include recommendations by the person submitting the plan as to the exercise by the Bank of England of any of its powers under this Part in relation to the bank.
	(7) Where a resolution instrument contains provision under subsection (1), the instrument may—
	(a) specify further matters (in addition to those mentioned in subsection (2)) that must be dealt with in the business reorganisation plan;
	(b) make provision about the timing of actions to be taken in connection with the making and approval of the plan;
	(c) enable any provision that the Bank of England has power under paragraph (a) or (b) to make in the instrument to be made instead in an agreement between the Bank of England and the bail-in administrator.
	(8) For the purposes of subsection (2)(b) the viability of a bank is to be assessed by reference to whether the bank satisfies, and (if so) for how long it may be expected to continue to satisfy, the threshold conditions (as define in section 55B of the Financial Services and Markets Act 2000).
	48I Bail-in administrator: further functions
	(1) A resolution instrument may—
	(a) authorise a bail-in administrator to manage the bank’s business (or confer on a bail-in administrator any other power with respect to the management of the bank’s business);
	(b) authorise a bail-in administrator to exercise any other powers of the bank;
	(c) confer on a bail-in administrator any other power the Bank of England may consider appropriate;
	(d) provide that the exercise of any power conferred by the instrument in accordance with this section is to be subject to conditions specified in the instrument.
	(2) A resolution instrument may require a bail-in administrator to make reports to the Bank of England—
	(a) on any matter specified in the instrument, and
	(b) at the times or intervals specified in the instrument.
	(3) If a resolution instrument specifies a matter in accordance with subsection (2)(a), it may provide for further requirements as to the contents of the report on that matter to be specified in an agreement between the Bank of England and the bail-in administrator.
	(4) A resolution instrument may—
	(a) require a bail-in administrator to consult specified persons before exercising specified functions (and may specify particular matters on which the specified person must be consulted);
	(b) provide that a bail-in administrator is not to exercise specified functions without the consent of a specified person.
	48J Bail-in administrator: supplementary
	(1) A bail-in administrator may do anything necessary or desirable for the purposes of or in connection with the performance of the functions of the office.
	(2) A bail-in administrator is not a servant or agent of the Crown (and, in particular, is not a civil servant).
	(3) Where a bail-in administrator is appointed under this Part, the Bank of England—
	(a) must make provision in a resolution instrument for resignation and replacement of the bail-in administrator;
	(b) may remove the bail-in administrator from office only (i) on the ground of incapacity or misconduct, or (ii) on the ground that there is no further need for a person to perform the functions conferred on the bail-in administrator.
	48K Bail-in administrator: money
	(1) A resolution instrument may provide for the payment of remuneration and allowances to a bail-in administrator.
	(2) Provision made under subsection (1) may provide that the amounts are—
	(a) to be paid by the Bank of England, or
	(b) to be determined by the Bank of England and paid by the bank.
	(3) A bail-in administrator is not liable for damages in respect of anything done in good faith for the purposes of or in connection with the functions of the office (subject to section 8 of the Human Rights Act 1998).
	48L Powers in relation to securities
	(1) A resolution instrument may—
	(a) cancel or modify any securities to which this subsection applies;
	(b) convert any such securities from one form or class into another.
	(2) Subsection (1) applies to securities issued by the bank that fall within Class 1 in section 14.
	(3) A resolution instrument may—
	(a) make provision with respect to rights attaching to securities issued by the bank;
	(b) provide for the listing of securities issued by the bank to be discontinued.
	(4) The reference in subsection (1)(b) to converting securities from one form or class into another includes creating a new security in connection with the modification of an existing security.
	(5) The provision that may be made under subsection (3)(a) includes, for example—
	(a) provision that specified rights attaching to securities are to be treated as having been exercised;
	(b) provision that the Bank of England, or a bail-in administrator, is to be treated as authorised to exercise specified rights attaching to securities;
	(c) provision that specified rights attaching to securities may not be exercised for a period specified in the instrument.
	(6) In subsection (3)(b) the reference to “listing” is to listing under section 74 of the Financial Services and Markets Act 2000.
	(7) The provision that may be made under this section in relation to any securities is in addition to any provision that the Bank of England may have power to make in relation to them under section 48B.
	48M Termination rights, etc
	(1) In this section “default event provision” has the same meaning as in section 22.
	(2) A resolution instrument may provide for subsection (3) or (4) to apply (but need not apply either).
	(3) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies.
	(4) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies except so far as the instrument provides otherwise.
	(5) In subsections (3) and (4) a reference to the resolution instrument is a reference to—
	(a) the making of the instrument,
	(b) anything that is done by the instrument or is to be, or may be, done under or by virtue of the instrument, and
	(c) any action or decision taken or made under this or another enactment in so far as it resulted in, or was connected to, the making of the instrument.
	(6) Provision under subsection (2) may apply subsection (3) or (4)—
	(a) generally or only for specified purposes, cases or circumstances, or
	(b) differently for different purposes, cases or circumstances.
	(7) A thing is not done by virtue of a resolution instrument for the purposes of subsection (5)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been affected by the instrument.
	48N Directors
	(1) A resolution instrument may enable the Bank of England—
	(a) to remove a director of a specified bank;
	(b) to vary the service contract of a director of a specified bank;
	(c) to terminate the service contract of a director of a specified bank;
	(d) to appoint a director of a specified bank.
	(2) Subsection (1) also applies to a director of any undertaking which is a banking group company in respect of a specified bank.
	(3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England.
	48O Directions in or under resolution instrument
	(1) A resolution instrument may—
	(a) require one or more directors of the bank to comply with any general or specific directions that may be set out in the instrument;
	(b) enable the Bank of England to give written directions (whether general or specific) to one or more directors of the bank.
	(2) A director—
	(a) is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the bank) by virtue of any action or inaction in compliance with a direction given under subsection (1)(a) or (b);
	(b) is to be immune from liability in damages in respect of action or inaction in accordance with a direction.
	(3) A director must comply with a direction within the period of time specified in the direction, or if no period of time is specified, as soon as reasonably practicable.
	(4) A direction under subsection (1)(a) or (b) is enforceable on an application made by the Bank of England, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
	48P Orders for safeguarding certain financial arrangements
	(1) In this section “protected arrangements” means security interests, title transfer collateral arrangements, set-off arrangements and netting arrangements.
	(2) In subsection (1)—
	“netting arrangements” means arrangements under which a number of claims or obligations can be converted into a net claim or obligation, and includes, in particular, “close-out” netting arrangements, under which actual or theoretical debts are calculated during the course of a contract for the purpose of enabling them to be set off against each other or to be converted into a net debt;
	“security interests” means arrangements under which one person acquires, by way of security, an actual or contingent interest in the property of another;
	“set-off arrangements” means arrangements under which two or more debts, claims or obligations can be set off against each other;
	“title transfer collateral arrangements” means arrangements under which Person 1 transfers assets to Person 2 on terms providing for Person 2 to transfer assets if specified obligations are discharged.
	(3) The Treasury may by order—
	(a) restrict the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;
	(b) impose conditions on the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;
	(c) require any instrument that makes special bail-in provision to include specified provision, or provision to a specified effect, in respect of or for purposes connected with protected arrangements;
	(d) provide for an instrument to be void or voidable, or for other consequences to arise, if or in so far as the instrument is made or purported to be made in contravention of a provision of the order (or of another order under this section);
	(e) specify principles to which the Bank of England is to be required to have regard in exercising specified powers—
	(i) that involve protected arrangements, or
	(ii) where the exercise of the powers might affect protected arrangements.
	(4) References to exercising a power within the scope of paragraph (a) or (b) of subsection (3) are to making an instrument containing provision made in reliance on section 12A(3)(a) or 44B (special bail-in provision).
	(5) An order may apply to protected arrangements generally or only to arrangements—
	(a) of a specified kind, or
	(b) made or applying in specified circumstances.
	(6) An order may include provision for determining which arrangements are to be, or not to be, treated as protected arrangements; in particular, an order may provide for arrangements to be classified not according to their description by the parties but according to one or more indications of how they are treated, or are intended to be treated, in commercial practice.
	(7) In this section “arrangements” includes arrangements which—
	(a) are formed wholly or partly by one or more contracts or trusts;
	(b) arise under or are wholly or partly governed by the law of a country or territory outside the United Kingdom;
	(c) wholly or partly arise automatically as a matter of law;
	(d) involve any number of parties;
	(e) operate partly by reference to other arrangements between parties.
	(8) An order—
	(a) is to be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
	48Q Continuity
	(1) A resolution instrument may provide for anything (including legal proceedings) that relates to anything affected by the instrument and is in the process of being done immediately before the instrument takes effect to be continued from the time the instrument takes effect.
	(2) A resolution instrument may modify references (express or implied) in an instrument or document.
	(3) A resolution instrument may require or permit any person to provide information and assistance to the Bank of England or another person, for the purposes of or in connection with provision made or to be made in that or another resolution instrument.
	48R Execution and registration of instruments etc
	(1) A resolution instrument (other than an instrument that provides for securities to be transferred) may permit or require the execution, issue or delivery of an instrument.
	(2) A resolution instrument may provide for any provision in the instrument to have effect irrespective of—
	(a) whether an instrument has been produced, delivered, transferred or otherwise dealt with;
	(b) registration.
	(3) A resolution instrument may provide for the effect of an instrument executed, issued or delivered in accordance with the resolution instrument.
	(4) A resolution instrument may—
	(a) entitle a person to be registered in respect of a security;
	(b) require a person to effect registration.
	48S Resolution instruments: general matters
	(1) Provision made in a resolution instrument takes effect despite any restriction arising by virtue of contract or legislation or in any other way.
	(2) A resolution instrument may include incidental, consequential or transitional provision.
	(3) In relying on subsection (2) a resolution instrument—
	(a) may make provision generally or only for specified purposes, cases or circumstances, and
	(b) may make different provision for different purposes, cases or circumstances.
	48T Procedure
	(1) As soon as is reasonably practicable after making a resolution instrument in respect of a bank the Bank of England must send a copy to—
	(a) the bank,
	(b) the Treasury,
	(c) the PRA,
	(d) the FCA, and
	(e) any other person specified in the code of practice under section 5.
	(2) As soon as is reasonably practicable after making a resolution instrument the Bank of England must publish a copy—
	(a) on the Bank’s internet website, and
	(b) in two newspapers, chosen by the Bank of England to maximise the likelihood of the instrument coming to the attention of persons likely to be affected.
	(3) Where the Treasury receive a copy of a resolution instrument under subsection (1) they must lay a copy before Parliament.
	48U Supplemental resolution instruments
	(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) with respect to a bank.
	(2) The Bank of England may make, with respect to the bank, one or more resolution instruments designated by the Bank of England as supplemental resolution instruments.
	(3) Sections 7 and 8A do not apply to a supplemental resolution instrument (but it is to be treated in the same way as a resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
	(4) Before making a supplemental resolution instrument the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.
	(5) The possibility of making a supplemental resolution instrument in reliance on subsection (2) is without prejudice to the possibility of making a new instrument in accordance with section 12A(2) (and not in reliance on subsection (2) above).
	48V Onward transfer
	(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) providing for securities issued by a specified bank to be transferred to any person.
	(2) The Bank of England may make one or more onward transfer resolution instruments.
	(3) An onward transfer resolution instrument is a resolution instrument which—
	(a) provides for the transfer of—
	(i) securities which were issued by the bank before the original instrument and have been transferred by the original instrument or a supplemental resolution instrument, or
	(ii) securities which were issued by the bank after the original instrument;
	(b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by the bank (whether the transfer has been or is to be effected by that instrument, by another instrument or otherwise).
	(4) An onward transfer resolution instrument may not transfer securities to the transferor under the original instrument.
	(5) Sections 7 and 8A do not apply to an onward transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
	(6) Before making an onward transfer resolution instrument the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.
	(7) Section 48U applies where the Bank of England has made an onward transfer resolution instrument.
	48W Reverse transfer
	(1) This section applies where the Bank of England has made an instrument (“the original instrument”) that is either—
	(a) a resolution instrument providing for the transfer of securities issued by a bank to a person (“the transferee”), or
	(b) an onward transfer resolution instrument (see section 48V) providing for the transfer of securities issued by a bank to a person (“the onward transferee”).
	(2) In a case falling within subsection (1)(a) the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the transferee (whether or not they were transferred by the original instrument).
	(3) In a case falling within subsection (1)(b), the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the onward transferee.
	(4) A reverse transfer resolution instrument is a resolution instrument which—
	(a) provides for transfer to the transferor under the original instrument;
	(b) makes other provision for the purposes of, or in connection with, the transfer of securities which are, or could be or could have been, transferred under paragraph (a).
	(5) Except where subsection (6) applies, the Bank of England may make a reverse transfer resolution instrument under subsection (2) only with the written consent of the transferee.
	(6) This subsection applies where the transferee is—
	(a) a bail-in administrator, or
	(b) a person who is not to be authorised to exercise any rights attaching to the securities except on the Bank of England’s instructions.
	(7) The Bank of England may make a reverse transfer resolution instrument under subsection (3) only with the written consent of the onward transferee.
	(8) Sections 7 and 8A do not apply to a reverse transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes including for the purposes of an application of a power under this Part).
	(9) Before making a reverse transfer resolution instrument the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.
	(10) Section 48U applies where the Bank of England has made a reverse transfer resolution instrument.”
	Transfers of property
	5 (1) After section 41 insert—
	“41A Transfer of property subsequent to resolution instrument
	(1) This section applies where the Bank of England has made a resolution instrument.
	(2) The Bank of England may make one or more property transfer instruments in respect of property, rights or liabilities of the bank.
	(3) Sections 7 and 8A do not apply to a property transfer instrument under subsection (2).
	(4) Before making a property transfer instrument under subsection (2) the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.”
	(2) In section 42 (supplemental property transfer instruments)—
	(a) in subsection (1) for “12(2)” substitute “12(2) or 41A(2)”;
	(b) in subsection (4) for “and 8” substitute “, 8 and 8A”;
	(c) in subsection (6) for “or 12(2)” substitute “, 12(2) or 41A(2)”.
	(3) After section 44 insert—
	“44A Bail in: reverse property transfer
	(1) This section applies where the Bank of England has made a property transfer instrument in accordance with section 41A(2) (“the original instrument”).
	(2) The Bank of England may make one or more bail-in reverse property transfer instruments in respect of property, rights or liabilities of the transferee under the original instrument.
	(3) A bail-in reverse property transfer instrument is a property transfer instrument which—
	(a) provides for a transfer to the transferor under the original instrument;
	(b) makes other provision for the purposes of, or in connection with, the transfer of property, rights or liabilities which are, or could be or could have been, transferred under paragraph (a) (whether the transfer has been or is to be effected by that instrument or otherwise).
	(4) The Bank of England may make a bail-in reverse property transfer instrument only with the written consent of the transferee under the original instrument.
	(5) Sections 7 and 8A do not apply to a bail-in reverse property transfer instrument (but it is to be treated in the same way as any other property transfer instrument for all other purposes, including for the purposes of the application of a power under this Part).
	(6) Before making a bail-in reverse property transfer instrument the Bank of England must consult—
	(a) the PRA,
	(b) the FCA, and
	(c) the Treasury.
	(7) Section 42 (supplemental instruments) applies where the Bank of England has made a bail-in reverse property transfer instrument.
	44B Property transfer instruments: special bail-in provision
	(1) A property transfer instrument under section 12(2) or 41A(2) may make special bail-in provision with respect to the bank (see section 48B).
	(2) In the case of a property transfer instrument under section 12(2), the power under subsection (1) to make the provision described in section in section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes power to make provision replacing a liability (of any form) of the bank mentioned in subsection (1) with a security (of any form or class) of the bridge bank mentioned in section 12(1).
	(3) Where securities of the bridge bank (“B”) are, as a result of subsection (2), held by a person other than the Bank of England, that does not prevent B from being regarded for the purposes of this Part (see particularly section 12(1)) as being wholly owned by the Bank of England, as long as the Bank of England continues to hold all the ordinary shares issued by B.
	44C Report on special bail-in provision
	(1) This section applies where the Bank of England makes a property transfer instrument containing provision made in reliance on section 44B.
	(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision was made in the case of the liabilities concerned.
	(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
	(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
	(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and
	(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.
	(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
	(6) A report must be made as soon as reasonably practicable after the making of the property transfer instrument to which it relates.
	(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
	(4) In section 48A (creation of liabilities), in subsection (1), after “44(4)(c)” insert “, 44A(3)(b)”.
	Compensation
	6 (1) In section 49 (orders)—
	(a) in subsection (1), for “three” substitute “four” and for “and property transfer instruments” substitute “, property transfer instruments and orders and resolution instruments”;
	(b) after subsection (2) insert—
	“(2A) A “bail-in compensation order” is an order establishing a scheme for determining, in accordance with section 52A, whether any transferors or others should be paid compensation.”
	(2) After section 52 insert—
	“52A Bail-in option
	(1) Subsection (2) applies if the Bank of England makes—
	(a) a resolution instrument under section 12A(2),
	(b) a property transfer instrument under section 41A(2), or
	(c) a supplemental resolution instrument under section 48U(2).
	(2) The Treasury must make a bail-in compensation order (see section 49(2A)).
	(3) A bail-in compensation order may include provision for—
	(a) an independent valuer (in which case sections 54 to 56 are to apply);
	(b) valuation principles (in which case section 57(2) to (5) is to apply).”
	(3) In section 53 (onward and reverse transfers), in subsection (1)—
	(a) after paragraph (f) insert—
	“(fa) the Bank of England makes a reverse property transfer instrument under section 44A(2),
	(fb) the Bank of England makes a supplemental property transfer instrument by virtue of section 44A(7),”;
	(b) omit the “or” after paragraph (g);
	(c) after paragraph (h) insert—
	“(i) the Bank of England makes an onward transfer resolution instrument under section 48V(2),
	(j) the Bank of England makes a reverse transfer resolution instrument under section 48W(2) or (3), or
	(k) the Bank of England makes a supplemental resolution instrument by virtue of section 48V(7) or 48W(10).”
	(4) In section 54 (independent valuer)—
	(a) in subsection (1), after “compensation scheme order” insert “or bail-in compensation order”;
	(b) in subsection (4)(b), after “order” insert “or bail-in compensation order”.
	(5) In section 56 (independent valuer: money), in subsection (2)(b) for “or third party compensation order” substitute “, third party compensation order or bail-in compensation order”.
	(6) In section 57 (valuation principles), in subsection (1), after “order” insert “or bail-in compensation order”.
	(7) After section 60 insert—
	“60A Further mandatory provision: bail-in provision
	(1) The Treasury may make regulations about compensation arrangements in the case of—
	(a) resolution instruments under section 12A(2) and supplemental resolution instruments under section 48U(2), and
	(b) instruments (made under any provision) that include special bail-in provision.
	(2) Regulations may—
	(a) require a compensation scheme order, a third party compensation order or a bail-in compensation order to include provision of a specified kind or to specified effect;
	(b) make provision that is to be treated as forming part of any such order (whether (i) generally, (ii) only if applied, (iii) unless disapplied, or (iv) subject to express modification).
	(3) Regulations may provide for whether compensation is to be paid, and if so what amount is to be paid, to be determined by reference to any factors or combination of factors; in particular, the regulations may provide for entitlement—
	(a) to be contingent upon the occurrence or non-occurrence of specified events;
	(b) to be determined wholly or partly by an independent valuer (within the meaning of sections 54 to 56) appointed in accordance with a compensation scheme order or bail-in compensation order.
	(4) Regulations may make provision about payment including, in particular, provision for payments—
	(a) on account subject to terms and conditions;
	(b) by instalment.
	(5) Regulations—
	(a) are to be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
	60B Principle of no less favourable treatment
	(1) In making regulations under section 60A the Treasury must, in particular, have regard to the desirability of ensuring that pre-resolution shareholders and creditors of a bank do not receive less favourable treatment than they would have received had the bank entered insolvency immediately before the coming into effect of the initial instrument.
	(2) References in this section to the initial instrument are—
	(a) in relation to compensation arrangements in the case of property transfer instruments under section 12(2), to the first instrument to be made under that provision with respect to the bank;
	(b) in relation to compensation arrangements in other cases, to the first resolution instrument to be made under section 12A with respect to the bank.
	(3) The “pre-resolution shareholders and creditors” of a bank are the persons who held securities issued by the bank, or were creditors of the bank, immediately before the coming into effect of the initial instrument.
	(4) References in this section to insolvency include a reference to (i) liquidation, (ii) bank insolvency, (iii) administration, (iv) bank administration, (v) receivership, (vi) composition with creditors, and (vii) a scheme of arrangement.”
	(8) In section 61(1) (sources of compensation),—
	(a) omit the “and” at the end of paragraph (c);
	(b) after paragraph (c) insert—
	“(ca) bail-in compensation orders,”;
	(c) after paragraph (d) insert, “, and
	(e) regulations under section 60A.”
	(9) In section 62(1) (procedure), omit the “and” at the end of paragraph (b), and after that paragraph insert—
	“(ba) bail-in compensation orders, and”.
	Groups
	7 (1) After section 81B insert—
	“81BA Bail-in option
	(1) The Bank of England may exercise a stabilisation power in respect of a banking group company in accordance with section 12A(2) if the following conditions are met.
	(2) Condition 1 is that the PRA is satisfied that the general conditions for the exercise of a stabilisation power set out in section 7 are met in respect of a bank in the same group.
	(3) Condition 2 is that the Bank of England is satisfied that the exercise of the power in respect of the banking group company is necessary, having regard to the public interest in—
	(a) the stability of the financial systems of the United Kingdom,
	(b) the maintenance of public confidence in the stability of those systems,
	(c) the protection of depositors, or
	(d) the protection of any client assets that may be affected.
	(4) Condition 3 is that the banking group company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.
	(5) Before determining whether Condition 2 is met, and if so how to react, the Bank of England must consult—
	(a) the Treasury,
	(b) the PRA, and
	(c) the FCA.
	(6) In exercising a stabilisation power in reliance on this section the Bank of England must have regard to the need to minimise the effect of the exercise of the power on other undertakings in the same group.”
	(2) After section 81C insert—
	“81CA Section 81BA: supplemental
	(1) This section applies where the Bank of England has power under section 81BA to exercise a stabilisation power in respect of a banking group company.
	(2) The provisions relating to the stabilisation powers and the bank administration procedure contained in this Act (except sections 7 and 8A) and any other enactment apply (with any necessary modifications) as if the banking group company were a bank.
	(3) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
	(a) the provisions in this Act relating to resolution instruments are to be read in accordance with the general rule in subsection (4), but
	(b) that is subject to the modifications in subsection (5);
	and provisions in this Act and any other enactment are to be read with any modifications that may be necessary as a result of paragraphs (a) and (b).
	(4) The general rule is that the provisions in this Act relating to resolution instruments (including supplemental resolution instruments) are to be read (so far as the context permits)—
	(a) as applying in relation to the bank as they apply in relation to the parent undertaking, and
	(b) so, in particular, as allowing any provision that may be made in a resolution instrument in relation to the parent undertaking to be made (also or instead) in relation to the bank.
	(5) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
	(a) section 41A (transfer of property subsequent to resolution instrument) applies as if the reference in subsection (2) to the bank were to the parent undertaking, the bank and any other bank which is or was in the same group;
	(b) section 48V (onward transfer)—
	(i) applies as if the references in subsection (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group, and with the omission of subsection (4) of that section, and
	(ii) is to be read as permitting the transfer of securities only if they are held by (or for the benefit of) the parent undertaking or a subsidiary company of the parent undertaking;
	(c) section 48W (reverse transfer) applies as if the references in subsections (2) and (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group.
	(6) Where section 48B (special bail-in provision) applies in accordance with subsection (4) (so that section 48B applies in relation to the bank mentioned in section 81BA(2) as it applies in relation to the parent undertaking mentioned in subsection (3)), the provision that may be made in accordance with section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes provision replacing a liability (of any form) of that bank with a security (of any form or class) of the parent undertaking.
	(7) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2)—
	(a) section 214B of the Financial Services and Markets Act 2000 (contribution to costs of special resolution regime) applies, and
	(b) the reference in subsection (1)(b) of that section to the bank, and later references in that section, are treated as including references to any other bank which is a subsidiary undertaking of the parent undertaking (but not the parent undertaking itself).”
	(3) In section 81D (interpretation: “banking group company” etc)—
	(a) in subsection (6), for “, 81C” substitute “to 81CA”;
	(b) in subsection (7) for “section 81B” substitute “sections 81B to 81CA”.
	Banks regulated by the Financial Conduct Authority
	8 In section 83A (modifications of Part 1 as it applies to banks not regulated by the Prudential Regulation Authority), in the table in subsection (2) insert the following entries at the appropriate places—
	
		
			 “Section 8A Subsection (3)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” 
			 “Section 41A Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” 
			 “Section 44A Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” 
			 “Section 48H Subsection (5)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. 
			 Section 48U Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. 
			 Section 48V Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. 
			 Section 48W Subsection (9)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” 
			 “Section 81BA Subsection (5)(b) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” 
		
	
	Recognised central counterparties
	9 In section 89B (application of Part 1 of the Act to recognised central counterparties)—
	(a) in subsection (1), before paragraph (a) insert—
	“(za) subsection (1A),”;
	(b) after subsection (1) insert—
	“(1A) The provisions relating to the third stabilisation option (bail-in) are to be disregarded in the application of this Part to recognised central counterparties.”;
	(c) in subsection (2), in the substituted section 13(1), for “third” substitute “fourth”.
	Insolvency proceedings
	10 In section 120 (notice to Prudential Regulation Authority of preliminary steps to certain insolvency proceedings)—
	(a) in subsection (7)(b)(ii), after “Part 1” insert “(and Condition 5 has been met, if applicable)”;
	(b) after subsection (8) insert—
	“(8A) Condition 5—
	(a) applies only if a resolution instrument has been made under section 12A with respect to the bank in the 3 months ending with the date on which the PRA receives the notification under Condition 1, and
	(b) is that the Bank of England has informed the person who gave the notice that it consents to the insolvency procedure to which the notice relates going ahead.”
	(c) in subsection (10), omit the “and” at the end of paragraph (b), and after paragraph (c) insert “, and
	(d) if Condition 5 applies, the Bank of England must, within the period in Condition 3(a), inform the person who gave the notice whether or not it consents to the insolvency procedure to which the notice relates going ahead.”;
	(d) After subsection (10) insert—
	“(11) References in this section to the insolvency procedure to which the notice relates are to the procedure for the determination, resolution or appointment in question (see subsections (1) to (4)).”
	State aid
	11 After section 256 insert—
	“State aid
	256AState aid
	(1) This section applies where—
	(a) the Treasury are of the opinion that anything done, or proposed to be done, in connection with the exercise in relation to an institution of one or more of the stabilisation powers may constitute the granting of aid to which any of the provisions of Article 107 or 108 of the Treaty on the Functioning of the European Union applies (“State aid”), and
	(b) section 145A (power to direct bank administrator) does not apply.
	(2) The Treasury may, in writing, direct any bail-in administrator, or any director of the institution, to take specified action to enable the United Kingdom to pursue any of the purposes specified in subsection (3) of section 145A (read with subsection (9) of that section).
	(3) Before giving a direction under this section the Treasury must consult the person to whom the direction is to be given.
	(4) The person must comply with the direction within the period of time specified in the direction, or, if no period of time is specified, as soon as is reasonably practicable.
	(5) A direction under this section is enforceable on an application made by the Treasury, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”
	Other amendments of the Act
	12 (1) Section 1 (overview) is amended as follows.
	(2) In subsection (2)(a), for “three” substitute “four”.
	(3) For subsection (3) substitute—
	“(3) The four “stabilisation options” are—
	(a) transfer to a private sector purchaser (section 11),
	(b) transfer to a bridge bank (section 12),
	(c) the bail-in option (section 12A), and
	(d) transfer to temporary public ownership (section 13).”
	(4) In subsection (4)—
	(a) for “three” substitute “four”;
	(b) before paragraph (a) insert—
	“(za) the resolution instrument powers (sections 12A(2) and 48U to 48W),”;
	(c) in paragraph (b), after “33” insert “, 41A”.
	13 In section 13 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
	14 In section 17 (share transfers: effect)—
	(a) in subsection (1), after “order” insert, “or by a resolution instrument”;
	(b) in subsection (5), after “order” insert “or a resolution instrument”;
	(c) in subsection (6), after “order” insert “or a resolution instrument”.
	15 In section 18 (share transfers: continuity), after subsection (5) insert—
	“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument (and references to transfers, transferors and transferees are to be read accordingly).”
	16 In section 21 (ancillary instruments: production, registration etc), after subsection (5) insert—
	“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument.”
	17 In section 44 (reverse property transfer)—
	(a) in subsection (2), after “more” insert “bridge bank”;
	(b) in subsection (3), after “more” insert “bridge bank”;
	(c) in subsection (4), for “A reverse” substitute “A bridge bank reverse”;
	(d) in subsection (4A)—
	(i) after “make a” insert “bridge bank”, and
	(ii) in paragraph (b), for “the reverse” substitute “the bridge bank reverse”;
	(e) in subsection (5), for “a reverse” substitute “a bridge bank reverse”;
	(f) in subsection (6), for “a reverse” substitute “a bridge bank reverse”;
	(g) in subsection (7), for “a reverse” substitute “a bridge bank reverse”;
	(h) in the heading, for “Reverse” substitute “Bridge bank: reverse”.
	18 In section 63 (general continuity obligation: property transfers), in subsection (1)(a), for “or 12(2)” substitute “, 12(2) or 41A(2)”.
	19 In section 66 (general continuity obligation: share transfers)—
	(a) in subsection (1)(a), after “13(2)” insert “, or which falls within subsection (1A)”;
	(b) in subsection (1)(d)(i), after “11(2)(a)” insert “, or in a case falling within subsection (1A)”;
	(c) after subsection (1) insert—
	“(1A) A bank falls within this subsection if a resolution instrument (or supplemental resolution instrument) has changed the ownership of the bank (wholly or partly) by providing for the transfer, cancellation or conversion from one form or class to another of securities issued by the bank (and the reference in subsection (1)(b) to “the transfer” includes such a cancellation or conversion).”
	20 In section 67 (special continuity obligation: share transfers), in subsection (4)(c), after “order” insert “or resolution instrument”.
	21 In section 68 (continuity obligations: onward share transfers), in subsection (1)(a), after “transferred by” insert “a resolution instrument under section 12A(2) or supplemental resolution instrument under section 48U(2) or a”.
	22 In section 71 (pensions), in subsection (1)—
	(a) omit the “and” at the end of paragraph (b);
	(b) after paragraph (c) insert “, and
	(d) resolution instruments.”
	23 In section 72 (enforcement), in subsection (1)—
	(a) omit the “or” at the end of paragraph (b);
	(b) after paragraph (c) insert “, or
	(d) a resolution instrument.”
	24 In section 73 (disputes), in subsection (1)—
	(a) omit the “and” at the end of paragraph (b);
	(b) after paragraph (c) insert “, and
	(d) resolution instruments.”
	25 In section 74 (tax), in subsection (6), for “or 45” substitute “, 45, 48U or 48V”.
	26 After section 80 insert—
	“80A Transfer for bail-in purposes: report
	(1) This section applies where the Bank of England makes one or more resolution instruments under section 12A(2) in respect of a bank.
	(2) The Bank of England must, on request by the Treasury, report to the Chancellor of the Exchequer about—
	(a) the exercise of the power to make a resolution instrument under section 12A(2),
	(b) the activities of the bank, and
	(c) any other matters in relation to the bank that the Treasury may specify.
	(3) In relation to the matters in subsection (2)(a) and (b), the report must comply with any requirements that the Treasury may specify.
	(4) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
	27 In section 81A (accounting information to be included in reports under sections 80 and 81)—
	(a) in subsection (1), for “or 81” substitute “, 80A(2)(b) or 81”;
	(b) in the heading, for “and 81” substitute “, 80A(2)(b) and 81”.
	28 In section 85 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
	29 In section 136 (overview), in the Table in subsection (3), for “152” substitute “152A”.
	30 After section 152 insert—
	“152A Property transfer from transferred institution
	(1) This section applies where the Bank of England—
	(a) makes a resolution instrument that transfers securities issued by a bank (or a bank’s parent undertaking), in accordance with section 12A(2), and
	(b) later makes a property transfer instrument from the bank or from another bank which is or was in the same group as the bank, in accordance with section 41A(2).
	(2) This Part applies to the transferor under the property transfer instrument made in accordance with section 41A(2) as to the transferor under a property transfer instrument made in accordance with section 12(2).
	(3) For that purpose this Part applies with any modifications specified by the Treasury in regulations; and any regulations—
	(a) are to be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
	31 In section 220 (insolvency etc), after subsection (4) insert—
	“(4A) The fact that ownership of an authorised bank is transferred or otherwise changed as a result of a resolution instrument (or an instrument treated as a resolution instrument) does not itself prevent the bank from relying on section 213.”
	32 In section 259 (statutory instruments)—
	(a) in the Table in subsection (3), in Part 1, in the entry relating to section 60 for “Third party compensation” substitute “Third party compensation: partial property transfers”;
	(b) in the Table in subsection (3), in Part 1, at the appropriate places insert—
	
		
			 “48F(1) and (2) Power to amend definition of “excluded liabilities” Draft affirmative resolution 
			 48G Insolvency treatment principles Draft affirmative resolution 
			 48P Safeguarding of certain financial arrangements Draft affirmative resolution 
			 52A Bail-in compensation orders Draft affirmative resolution” 
			 “60A Third party compensation: instruments containing special bail-in provision Draft affirmative resolution”; 
		
	
	(c) in the Table in subsection (3), in Part 3, at the appropriate place insert—
	
		
			 “152A Property transfer from transferred institution Draft affirmative resolution”; 
		
	
	(d) in subsection (5), after paragraph (d) insert—
	“(da) section 60A (special resolution regime: instruments containing special bail-in provision),”;
	(e) in subsection (5), after paragraph (k) insert—
	“(ka) section 152A (bank administration: property transfer from transferred institution),”.
	33 In section 261 (index of defined terms), in the Table, at the appropriate places insert—
	
		
			 “Bail-in compensation order 49” 
			 “Resolution instrument 12A” 
			 “Special bail-in provision 48B”. 
		
	
	Part 2Modification of Investment Bank Special Administration Regulations 2011
	34 (1) This section modifies the application of the Investment Bank Special Administration Regulations 2011 (S.I. 2011/245) (“the regulations”) in cases where a resolution instrument has been made under section 12A of the Banking Act 2009 with respect to the investment bank in the relevant 3-month period.
	(2) In subsection (1) “the relevant 3-month period” means the 3 months ending with the date on which the FCA receives the notification under Condition 1 in regulation 8 of the regulations.
	(3) In their application to those cases, the regulations have effect with the modifications in sub-paragraph (4); and any enactment that refers to the regulations is to be read accordingly.
	(4) In regulation 8 (in its application to those cases)—
	(a) in paragraph (5)(c)(ii), for “appropriate regulator” substitute “Bank of England” and after “notice” insert “and the appropriate regulator”;
	(b) in paragraph (6), omit sub-paragraph (a) (but continue to read “that” in sub-paragraph (b) as a reference to the insolvency procedure to which the notice relates);
	(c) after paragraph (6) insert—
	“(6A) Where the FCA receives notice under Condition 1, it must also inform the Bank of England of the contents of the notice.
	(6B) Where the Bank of England receives notice under subsection (6A), it must, within the period in Condition 3, inform the person who gave the notice and the appropriate regulator whether or not it consents to the insolvency procedure to which the notice relates going ahead.””
	Amendment 105 agreed.
	Amendments 106 to 110
	 Moved by Lord Newby
	106: Before Schedule 2, insert the following new Schedule—
	ScheduleConsequential amendments relating to Part 4Financial Services and Markets Act 2000
	1 (1) Section 59 of FSMA 2000 (approval for particular arrangements) is amended as follows.
	(2) In subsection (1), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
	(3) In subsection (2), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
	2 (1) Section 59A of FSMA 2000 (specifying functions as controlled functions: supplementary) is amended as follows.
	(2) In subsection (1)(a) and (b), for “significant-influence” substitute “senior management”.
	(3) After subsection (3) insert—
	“(3A) “Senior management function” has the meaning given by section 59ZA.””
	3 (1) Section 63 of FSMA 2000 (withdrawal of approval) is amended as follows.
	(2) In subsection (1A)(a), for “significant-influence function” substitute “relevant senior management function”.
	(3) For subsection (1B) substitute—
	“(1B) In subsection (1A) “relevant senior management function” means a function which the PRA is satisfied is a senior management function as defined in section 59ZA (whether or not the function has been designated as such by the FCA).”
	4 In section 63A of FSMA 2000 (power to impose penalties), in subsection (2), for paragraph (b) substitute—
	“(b) P, when performing the function, is not acting in accordance with an approval given under section 59.”
	5 (1) Section 66 of FSMA 2000 (disciplinary powers) is amended as follows.
	(2) In subsection (3), for paragraph (ab) (and the “or” following it) substitute—
	“(ab) impose, for such period as it considers appropriate, any conditions in relation to any such approval which it considers appropriate;
	(ac) limit the period for which any such approval is to have effect;”.
	(3) In subsection (3A), for “restriction” substitute “condition”.
	(4) In subsection (3B), for “or restriction” substitute “, condition or limitation”.
	(5) In subsection (3C), for “restriction” substitute “condition”.
	(6) In subsection (3D)—
	(a) in paragraph (a), for “or restriction” substitute “, condition or limitation”,
	(b) omit the “or” at the end of paragraph (a),
	(c) in paragraph (b), for “restriction” substitute “condition”, and
	(d) after that paragraph insert—
	“(c) vary a limitation so as to increase the period for which the approval is to have effect.”
	(7) In subsection (9), for “restriction” substitute “condition”.
	6 (1) Section 67 of FSMA 2000 (disciplinary measures: procedure and right to refer to Tribunal) is amended as follows.
	(2) In subsection (1), for “or (ab)” substitute “, (ab) or (ac)”.
	(3) In subsection (2A), for “restriction” (in both places) substitute “condition”.
	(4) After subsection (2A) insert—
	“(2B) A warning notice about a proposal to limit the period for which an approval is to have effect must state the length of that period.”
	(5) In subsection (4), for “or (ab)” substitute “, (ab) or (ac)”.
	(6) In subsection (5A), for “restriction” (in both places) substitute “condition”.
	(7) After subsection (5A) insert—
	“(5B) A decision notice about limiting the period for which an approval is to have effect must state the length of that period.”
	(8) In subsection (7), for “or (ab)” substitute “, (ab) or (ac)”.
	7 In section 69 of FSMA 2000 (statement of policy), in subsection (1)—
	(a) in paragraph (a), for “or restrictions” substitute “, conditions or limitations”;
	(b) omit the “and” at the end of paragraph (b);
	(c) in paragraph (c), for “restrictions” substitute “conditions”;
	(d) at the end of paragraph (c) insert “; and
	(d) the period for which approvals under section 59 are to have effect as a result of a limitation under section 66.”
	8 In section 138A of FSMA 2000 (modification or waiver of rules), in subsection (2), before paragraph (a) insert—
	“(za) rules made by either regulator under section 64A (rules of conduct);”.
	9 In section 138D of FSMA 2000 (actions for damages), in subsection (5), before paragraph (a) insert—
	“(za) rules under section 64A (rules of conduct);”.
	10 In section 140A of FSMA 2000 (interpretation), in the definition of “regulating provisions”—
	(a) in paragraph (a)—
	(i) omit sub-paragraph (iii), and
	(ii) in sub-paragraph (iv), omit “64 or”;
	(b) in paragraph (b), omit sub-paragraphs (ii) and (iii).
	11 In section 347 of FSMA 2000 (the record of authorised persons etc.), for subsection (9) substitute—
	“(9) “Relevant authorised person”, in relation to an approved person, means the person on whose application approval was given.”
	12 In section 387 of FSMA 2000 (warning notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
	13 In section 388 of FSMA 2000 (decision notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
	14 In section 395 of FSMA 2000 (supervisory notices), in subsection (13), after paragraph (a) insert—
	“(aa) 63ZC(4), (8) or (9)(b);”.
	15 (1) Section 415B of FSMA 2000 (consultation in relation to taking certain enforcement action) is amended as follows.
	(2) In subsection (4)—
	(a) in paragraph (b), for “significant-influence” substitute “relevant senior management”, and
	(b) omit the definitions appearing after that paragraph.
	(3) After subsection (4) insert—
	“(5) In subsection (4)—
	“arrangement” has the same meaning as in section 59;
	“relevant senior management function” means a function which the FCA is satisfied is a senior management function as defined in section 59ZA (whether or not it has been designated as such under section 59(6B) or (6C)).”
	16 In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in paragraph 8(3)—
	(a) in paragraph (b), omit “64 or”;
	(b) in paragraph (c)(i)—
	(i) after “section” insert “63ZD,”, and
	(ii) omit “64,”.
	17 In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in paragraph 16(3)—
	(a) omit paragraph (b);
	(b) in paragraph (c)(i)—
	(i) after “section” insert “63ZD,”, and
	(ii) omit “64,”.
	Financial Services Act 2012
	18 In section 14 of the Financial Services Act 2012, omit subsection (4).
	19 (1) Section 85 of the Financial Services Act 2012 (relevant functions in relation to complaints scheme) is amended as follows.
	(2) In subsection (4)—
	(a) in paragraph (b), omit “64 or”;
	(b) in paragraph (c)(i)—
	(i) after “section” insert “63ZD,”, and
	(ii) omit “64,”.
	(3) In subsection (5)—
	(a) omit paragraph (b);
	(b) in paragraph (c)(i)—
	(i) after “section” insert “63ZD,”, and
	(ii) omit “64,”.”
	106A: Before Schedule 2, insert the following new Schedule—
	ScheduleThe Payment Systems RegulatorIntroductory
	1 In this Schedule—
	(a) “the Regulator” means the Payment Systems Regulator;
	(b) references to the functions of the Regulator are to functions conferred on it by or under this Part.
	Constitution
	2 (1) The constitution of the Regulator must provide for it to have a board whose members are the directors of the Regulator.
	(2) The board is to consist of the following members—
	(a) a member to chair it, appointed by the FCA with the approval of the Treasury;
	(b) a member to be the Managing Director, appointed by the FCA with the approval of the Treasury;
	(c) one or more other members appointed by the FCA.
	(3) The persons who may be appointed under sub-paragraph (2) include persons who are members of the FCA’s governing body.
	(4) A person may be appointed under sub-paragraph (2) only if the person has knowledge or experience which is likely to be relevant to the exercise by the Regulator of its functions.
	(5) A person appointed under sub-paragraph (2)(a) or (b) is liable to removal from office by the FCA (acting with the approval of the Treasury).
	(6) A person appointed under sub-paragraph (2)(c) is liable to removal from office by the FCA.
	Status
	3 (1) The Regulator is not to be regarded as exercising functions on behalf of the Crown.
	(2) The officers and staff of the Regulator are not to be regarded as Crown servants.
	Budget
	4 (1) The Regulator must adopt an annual budget which has been approved by the FCA.
	(2) The budget must be adopted—
	(a) in the case of the Regulator’s first financial year, as soon as reasonably practicable after it is established, and
	(b) in the case of each subsequent financial year, before the start of the financial year.
	(3) The Regulator may, with the approval of the FCA, vary the budget for a financial year at any time after its adoption.
	(4) Before adopting or varying a budget, the Regulator must consult—
	(a) the Treasury, and
	(b) such other persons (if any) as the Regulator considers appropriate.
	(5) The Regulator must publish each budget, and each variation of a budget, in the way it considers appropriate.
	Arrangements for discharging functions
	5 (1) The Regulator may make arrangements for any of its functions to be discharged by—
	(a) a committee, sub-committee, officer or member of staff of the Regulator;
	(b) an officer or member of staff of the FCA.
	This is subject to sub-paragraphs (2) to (4).
	(2) In exercising any functions within sub-paragraph (3), the Regulator must act through its board.
	(3) The functions referred to in sub-paragraph (2) are—
	(a) giving general directions under section (Directions);
	(b) imposing requirements under section (System rules) that apply to all operators of regulated payment systems.
	(4) The function of issuing general guidance may not be discharged by an officer or member of staff of the Regulator or of the FCA.
	Annual plan
	6 (1) The Regulator must in respect of each of its financial years prepare an annual plan which has been approved by the FCA.
	(2) The plan must be prepared—
	(a) in the case of the Regulator’s first financial year, as soon as reasonably practicable after it is established, and
	(b) in the case of each subsequent financial year, before the start of the financial year.
	(3) The Regulator may, with the approval of the FCA, vary the plan in respect of a financial year at any time after its preparation.
	(4) An annual plan in respect of a financial year must set out—
	(a) the aims of the Regulator for the year,
	(b) how the extent to which each of those aims is met is to be determined,
	(c) the relative priorities of each of those aims, and
	(d) how its resources are to be allocated among the activities to be carried on in connection with the discharge of its functions.
	(5) In sub-paragraph (4) references to aims for a financial year include aims for a longer period that includes that year.
	(6) Before preparing or varying an annual plan, the Regulator must consult—
	(a) the Treasury, and
	(b) such other persons (if any) as the Regulator considers appropriate.
	(7) The Regulator must publish each annual plan, and each variation of an annual plan, in the way it considers appropriate.
	Annual report
	7 (1) At least once a year, the Regulator must make a report to the FCA in relation to the discharge of its functions.
	(2) The report must—
	(a) set out the extent to which the Regulator has met its aims and priorities for the period covered by the report,
	(b) set out the extent to which the Regulator has advanced its payment systems objectives,
	(c) include a copy of its latest accounts, and
	(d) comply with any requirement specified in rules made by the FCA.
	(3) The Regulator must publish each report in the way it considers appropriate.
	(4) Nothing in this paragraph requires the Regulator to make a report at any time in the period of 12 months beginning with its establishment.
	(5) The Treasury may—
	(a) require the Regulator to comply with any provision of the Companies Act 2006 about accounts and their audit which would not otherwise apply to it, or
	(b) direct that any provision of that Act about accounts and their audit is to apply to the Regulator with such modifications as are specified in the direction, whether or not the provision would otherwise apply to it.
	(6) Compliance with any requirement under sub-paragraph (5)(a) or (b) is enforceable by injunction or, in Scotland, an order for specific performance under section 45 of the Court of Session Act 1988.
	(7) Proceedings under sub-paragraph (6) may be brought only by the Treasury.
	(8) The FCA’s power to make rules under sub-paragraph (2)(d) is to be treated as if it were a power of the FCA to make rules under FSMA 2000 (and rules made under sub-paragraph (2)(d) are to be treated accordingly).
	Audit of accounts
	8 (1) The Regulator must send a copy of its annual accounts to the Comptroller and Auditor General and the Treasury as soon as is reasonably practicable.
	(2) The Comptroller and Auditor General must—
	(a) examine, certify and report on accounts received under this paragraph, and
	(b) send a copy of the certified accounts and the report to the Treasury.
	(3) The Treasury must lay the copy of the certified accounts and the report before Parliament.
	(4) The Regulator must send a copy of the certified accounts and the report to the FCA.
	(5) Except as provided for by paragraph 7(5), the Regulator is exempt from the requirements of Part 16 of the Companies Act 2006 (audit) and its balance sheet must contain a statement to that effect.
	(6) In this paragraph “annual accounts” has the meaning given by section 471 of the Companies Act 2006.
	Funding
	9 (1) In this paragraph “the relevant costs” means—
	(a) the expenses incurred, or expected to be incurred, by the Regulator in connection with the discharge of its functions,
	(b) the expenses incurred by the FCA in establishing the Regulator,
	(c) any other expenses incurred by the FCA in connection with the discharge of its functions under this Part, and
	(d) any expenses incurred, or expected to be incurred, by the FCA in connection with the discharge of the Regulator’s functions by an officer or member of staff of the FCA under arrangements made under paragraph 5.
	For the purposes of paragraph (b) it does not matter when the expenses were incurred.
	(2) For the purpose of meeting the relevant costs the FCA may make rules requiring participants in regulated payment systems to pay to the FCA specified amounts or amounts calculated in a specified way.
	(3) Before making any rules under sub-paragraph (2) the FCA must consult the Treasury.
	(4) The amounts to be paid under the rules may include a component to cover the expenses of the FCA in collecting the payments (“collection costs”).
	(5) The FCA must pay to the Regulator the amounts that it receives under the rules, apart from the following amounts (which it may keep)—
	(a) amounts in respect of expenses falling within sub-paragraph (1)(b) to (d);
	(b) amounts in respect of its collection costs.
	(6) In this paragraph “specified” means specified in the rules.
	(7) The FCA’s power to make rules under this paragraph is to be treated as if it were a power of the FCA to make rules under FSMA 2000 (and rules made under this paragraph are to be treated accordingly).
	Penalty receipts
	10 (1) The Regulator must in respect of each of its financial years pay to the Treasury any amounts received by it during the year by way of penalties imposed under section (Penalties).
	(2) The Treasury may give directions to the Regulator as to how it is to comply with its duty under sub-paragraph (1).
	(3) The directions may in particular—
	(a) specify the time when any payment is required to be made to the Treasury, and
	(b) require the Regulator to provide the Treasury at specified times with information relating to penalties that the Regulator has imposed under section (Penalties).
	(4) The Treasury must pay into the Consolidated Fund any sums received by them under this paragraph.
	Records
	11 The Regulator must maintain satisfactory arrangements for—
	(a) recording decisions made in the exercise of its functions, and
	(b) the safe-keeping of those records which it considers ought to be preserved.
	Exemption from liability in damages
	12 (1) None of the following is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the Regulator’s functions—
	(a) the Regulator;
	(b) any person (“P”) who is, or is acting as, an officer or member of staff of the Regulator;
	(c) any person who could be held vicariously liable for things done or omitted by P, but only in so far as the liability relates to P’s conduct.
	(2) If the Regulator has made arrangements under paragraph 5 for any of its functions to be discharged by an officer or member of staff of the FCA, references in sub-paragraph (1) to a person who is an officer or member of staff of the Regulator include references to the officer or member of staff of the FCA.
	(3) Anything done or omitted by a person mentioned in sub-paragraph (1)(b) or (c) while acting, or purporting to act, as a result of an appointment under section (Reports by skilled persons) or (Appointment of persons to conduct investigations) is to be taken for the purposes of sub-paragraph (1) to have been done or omitted in the discharge or (as the case may be) purported discharge of the Regulator’s functions.
	(4) Sub-paragraph (1) does not apply—
	(a) if the act or omission is shown to have been in bad faith, or
	(b) so as to prevent an award of damages made in respect of an act or omission on the ground that the act or omission was unlawful as a result of section 6(1) of the Human Rights Act 1998.”
	106B: Before Schedule 2, insert the following new Schedule—
	ScheduleProcedure for appeals to the CMAFunctions of CMA to be discharged by group
	1 Except where specified otherwise in this Schedule, the functions of the CMA with respect to an appeal are to be carried out on behalf of the CMA by a group constituted for the purpose by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
	2 (1) Schedule 4 to the Enterprise and Regulatory Reform Act 2013 is amended as follows.
	(2) In paragraph 35(1) (membership of CMA panel), after paragraph (c) insert—
	“(ca) at least one person (a “payment systems panel member”) appointed to the CMA panel under paragraph 1(1)(b) for the purpose of being available for selection as a member of a group constituted to carry out functions on behalf of the CMA with respect to an appeal made in accordance with section (Appeals to Competition and Markets Authority) of the Financial Services (Banking Reform) Act 2013 (a “specialist payment systems group”);”.
	(3) In paragraph 38 (membership of CMA groups), after sub-paragraph (5) insert—
	“(5A) In the case of a specialist payment systems group, the group must include at least one payment systems member.”
	(4) In paragraph 48 (performance of functions of chair with respect to constitution etc of CMA group), in sub-paragraph (4)(c), at the end insert—
	“(v) Schedule (Procedure for appeals to the CMA) to the Financial Services (Banking Reform) Act 2013.”
	Application for permission to bring appeal
	3 (1) An application for permission to bring an appeal may be made only by sending a notice to the CMA requesting the permission.
	(2) An application for permission to appeal must be accompanied by all such information as may be required by appeal rules.
	(3) Appeal rules may require information contained in an application for permission to appeal to be verified by a statement of truth.
	(4) A person who applies for permission to bring an appeal in accordance with this paragraph is referred to in this Schedule as the appellant.
	(5) The appellant must send the Payment Systems Regulator—
	(a) a copy of the application for permission to appeal at the same time as it is sent to the CMA, and
	(b) such other information as may be required by appeal rules.
	(6) The CMA’s decision whether to grant permission to appeal is to be taken by an authorised member of the CMA.
	(7) Before the authorised member decides whether to grant permission under this paragraph, the Payment Systems Regulator must be given an opportunity of making representations or observations, in accordance with paragraph 5(2).
	(8) The CMA’s decision on an application for permission must be made—
	(a) where the Payment Systems Regulator makes representations or observations in accordance with paragraph 5(2), before the end of 10 working days beginning with the first working day after the day on which those representations or observations are received;
	(b) in any other case, before the end of 14 working days beginning with the first working day after the day on which the application for permission was received.
	(9) The grant of permission may be made subject to conditions, which may include—
	(a) conditions which limit the matters that are to be considered on the appeal in question;
	(b) conditions for the purpose of expediting the determination of the appeal;
	(c) conditions requiring the appeal to be considered together with other appeals (including appeals relating to different matters or decisions and appeals brought by different persons).
	(10) Where a decision is made to grant or to refuse an application for permission, an authorised member of the CMA must notify the decision, giving reasons, to the following persons—
	(a) the appellant, and
	(b) the Payment Systems Regulator.
	(11) A decision of the CMA under this paragraph must be published, in such manner as an authorised member of the CMA considers appropriate, as soon as reasonably practicable after it is made.
	(12) The CMA may exclude from publication under sub-paragraph (11) any information which it is satisfied is—
	(a) commercial information, the disclosure of which would, or might in the CMA’s opinion, significantly harm the legitimate business interests of an undertaking to which it relates, or
	(b) information relating to the private affairs of an individual, the disclosure of which would, or might in the CMA’s opinion, significantly harm the individual’s interests.
	Suspension of decision
	4 (1) The CMA may direct that, pending the determination of an appeal against a decision of the Payment Systems Regulator—
	(a) the decision is not to have effect, or
	(b) the decision is not to have effect to such extent as may be specified in the direction.
	(2) The power to give a direction under this paragraph is exercisable only where—
	(a) an application for its exercise has been made by the appellant at the same time as the appellant made an application in accordance with paragraph 3 for permission to bring an appeal against a decision of the Payment Systems Regulator,
	(b) the Payment Systems Regulator has been given an opportunity of making representations or observations, in accordance with paragraph 5(2), and
	(c) the balance of convenience does not otherwise require effect to be given to the decision pending that determination.
	(3) The CMA’s decision on an application for a direction under this paragraph must be made—
	(a) where the Payment Systems Regulator makes representations or observations in accordance with paragraph 5(2), before the end of 10 working days beginning with the first working day after the day on which those representations or observations are received;
	(b) in any other case, before the end of 14 working days beginning with the first working day following the day on which the application under sub-paragraph (2)(a) is received.
	(4) The appellant must send the Payment Systems Regulator a copy of the application for a direction under this paragraph at the same time as it is sent to the CMA.
	(5) The CMA’s decision whether to give a direction is to be taken by an authorised member of the CMA.
	(6) A direction under this paragraph must be—
	(a) given by an authorised member of the CMA, and
	(b) published, in such manner as an authorised member of the CMA considers appropriate, as soon as reasonably practicable after it is given.
	(7) Sub-paragraph (12) of paragraph 3 applies to the publication of a direction under sub-paragraph (6) of this paragraph as it applies to the publication of a decision under sub-paragraph (11) of that paragraph.
	Time limit for representations and observations by the Regulator
	5 (1) Sub-paragraph (2) applies where the Payment Systems Regulator wishes to make representations or observations to the CMA in relation to—
	(a) an application for permission to bring an appeal under paragraph 3;
	(b) an application for a direction under paragraph 4.
	(2) The Payment Systems Regulator must make the representations or observations in writing before the end of 10 working days beginning with the first working day after the day on which it received a copy of the application under paragraph 3(5) or 4(4) (as the case may be).
	(3) Sub-paragraph (4) applies where an application for permission to bring an appeal has been granted and the Payment Systems Regulator wishes to make representations or observations to the CMA in relation to—
	(a) the Payment Systems Regulator’s reasons for the decision in relation to which the appeal is being brought;
	(b) any grounds on which that appeal is being brought against that decision.
	(4) The Payment Systems Regulator must make the representations or observations in writing before the end of 15 working days beginning with the first working day after the day on which permission to bring the appeal was granted.
	(5) The Payment Systems Regulator must send a copy of the representations and observations it makes under this paragraph to the appellant.
	Consideration and determination of appeal by group
	6 (1) A group constituted by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013 for the purpose of carrying out functions of the CMA with respect to an appeal must consist of three members of the CMA panel.
	(2) A decision of the group is effective if, and only if—
	(a) all the members of the group are present when it is made, and
	(b) at least two members of the group are in favour of the decision.
	Time limits for determining appeal
	7 (1) The CMA must determine an appeal within the period of 6 months beginning with the permission date.
	(2) If—
	(a) the CMA has received representations on the timing of the determination from a party to the appeal, and
	(b) it is satisfied that there are special reasons why the determination cannot be made within the period specified in sub-paragraph (1),
	(3) In a case where sub-paragraph (2) applies, the CMA must also—
	(a) inform the parties to the appeal of the time limit for determining the appeal, and
	(b) publish that time limit in such manner as it considers appropriate for the purpose of bringing it to the attention of any other persons likely to be affected by the determination.
	(4) In this paragraph the “permission date” is the date on which the CMA gave permission to bring the appeal in accordance with section (Appeals: general)(8).
	Matters to be considered on appeal
	8 (1) The CMA, if it thinks it necessary to do so for the purpose of securing the determination of an appeal within the period provided for by paragraph 7, may disregard—
	(a) any or all matters raised by an appellant that were not raised by that appellant at the time of the relevant application, and
	(b) any or all matters raised by the Payment Systems Regulator that were not contained in representations or observations made for the purposes of the appeal in accordance with paragraph 5.
	(2) In this paragraph “relevant application” means an application under paragraph 3 or 4.
	Production of documents etc
	9 (1) For the purposes of this Schedule, the CMA may by notice—
	(a) require a person to produce to the CMA the documents specified or otherwise identified in the notice;
	(b) require any person who carries on a business to supply to the CMA such estimates, forecasts, returns or other information as may be specified or described in the notice in relation to that business.
	(2) The power to require the production of a document, or the supply of any estimate, forecast, return or other information, is a power to require its production or, as the case may be, supply—
	(a) at the time and place specified in the notice, and
	(b) in a legible form.
	(3) No person is to be compelled under this paragraph to produce a document or supply an estimate, forecast, return or other information which the person could not be compelled to produce in civil proceedings in the High Court or Court of Session.
	(4) An authorised member of the CMA may, for the purpose of the exercise of the functions of the CMA, make arrangements for copies to be taken of a document produced or an estimate, forecast, return or other information supplied to it under this paragraph.
	(5) A notice for the purposes of this paragraph—
	(a) may be issued on the CMA’s behalf by an authorised member of the CMA;
	(b) must include information about the possible consequences of not complying with the notice (as set out in paragraph 13).
	Oral hearings
	10 (1) For the purposes of this Schedule an oral hearing may be held, and evidence may be taken on oath—
	(a) by a person considering an application for permission to bring an appeal under paragraph 3,
	(b) by a person considering an application for a direction under paragraph 4, or
	(c) by a group with the function of determining an appeal;
	and, for that purpose, such a person or group may administer oaths.
	(2) The CMA may by notice require a person—
	(a) to attend at a time and place specified in the notice, and
	(b) at that time and place, to give evidence to a person or group mentioned in sub-paragraph (1).
	(3) At any oral hearing the person or group conducting the hearing may—
	(a) require the appellant or the Payment Systems Regulator, if present at the hearing, to give evidence or to make representations or observations, or
	(b) require a person attending the hearing as a representative of the appellant or of the Payment Systems Regulator to make representations or observations.
	(4) A person who gives oral evidence at the hearing may be cross-examined by or on behalf of any party to the appeal.
	(5) If the appellant, the Payment Systems Regulator, or the appellant’s or Payment Systems Regulator’s representative is not present at a hearing—
	(a) there is no requirement to give notice to that person under sub-paragraph (2), and
	(b) the person or group conducting the hearing may determine the application or appeal without hearing that person’s evidence, representations or observations.
	(6) No person is to be compelled under this paragraph to give evidence which the person could not be compelled to give in civil proceedings in the High Court or Court of Session.
	(7) Where a person is required under this paragraph to attend at a place more than 10 miles from the person’s place of residence, an authorised member of the CMA must arrange for the person to be paid the necessary expenses of attendance.
	(8) A notice for the purposes of this paragraph may be issued on the CMA’s behalf by an authorised member of the CMA.
	Written statements
	11 (1) The CMA may by notice require a person to produce a written statement with respect to a matter specified in the notice to—
	(a) a person who is considering, or is to consider, an application for a direction under paragraph 4, or
	(b) a group with the function of determining an appeal.
	(2) The power to require the production of a written statement includes power—
	(a) to specify the time and place at which it is to be produced, and
	(b) to require it to be verified by a statement of truth;
	and a statement required to be so verified must be disregarded unless it is so verified.
	(3) No person is to be compelled under this paragraph to produce a written statement with respect to any matter about which the person could not be compelled to give evidence in civil proceedings in the High Court or Court of Session.
	(4) A notice for the purposes of this paragraph may be issued on the CMA’s behalf by an authorised member of the CMA.
	Expert advice
	12 Where permission to bring an appeal is granted under paragraph 3, the CMA may commission expert advice with respect to any matter raised by a party to the appeal.
	Defaults in relation to evidence
	13 (1) If a person (“the defaulter”)—
	(a) fails to comply with a notice issued or other requirement imposed under paragraph 9, 10 or 11,
	(b) in complying with a notice under paragraph 11, makes a statement that is false in any material particular, or
	(c) in providing information verified in accordance with a statement of truth required by appeal rules, provides information that is false in a material particular,
	an authorised member of the CMA may certify that fact to the court.
	(2) If the court is satisfied that the defaulter failed without reasonable excuse to comply with the notice or other requirement, or made the false statement, or provided the false information, it may deal with the defaulter (and in the case of a body corporate, any director or other officer of the body) as if that person were in contempt.
	(3) In sub-paragraph (2) “officer”, in relation to a limited liability partnership, means a member of the limited liability partnership.
	(4) In this paragraph “court” means—
	(a) the High Court, or
	(b) in Scotland, the Court of Session.
	14 (1) A person who wilfully alters, suppresses or destroys a document which the person has been required to produce under paragraph 9 is guilty of an offence.
	(2) A person guilty of an offence under this paragraph is liable—
	(a) on summary conviction—
	(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;
	(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;
	(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;
	(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine, or both.
	Determination of appeal by CMA
	15 (1) A determination by the CMA on an appeal—
	(a) must be contained in an order made by the CMA;
	(b) must set out the reasons for the determination;
	(c) takes effect at the time specified in the order or determined in accordance with provision made in the order;
	(d) must be notified by the CMA to the parties to the appeal;
	(e) must be published by the CMA—
	(i) as soon as reasonably practicable after the determination is made;
	(ii) in such manner as the CMA considers appropriate for the purpose of bringing the determination to the attention of any person likely to be affected by it (other than a party to the appeal).
	(2) The CMA may exclude from publication under sub-paragraph (1)(e) any information which it is satisfied is—
	(a) commercial information, the disclosure of which would, or might in the CMA’s opinion, significantly harm the legitimate business interests of an undertaking to which it relates, or
	(b) information relating to the private affairs of an individual, the disclosure of which would, or might in the CMA’s opinion, significantly harm the individual’s interests.
	(3) The Payment Systems Regulator must take such steps as it considers necessary for it to comply with an order of the CMA made by virtue of sub-paragraph (1)(a).
	(4) The steps must be taken—
	(a) if a time is specified in (or is to be determined in accordance with) the order, within that time;
	(b) in any other case, within a reasonable time.
	Appeal rules
	16 (1) The CMA Board may make rules of procedure regulating the conduct and disposal of appeals.
	(2) Those rules may include provision supplementing the provisions of this Schedule in relation to any application, notice, hearing, power or requirement for which this Schedule provides; and that provision may, in particular, impose time limits or other restrictions on—
	(a) the taking of evidence at an oral hearing, or
	(b) the making of representations or observations at such a hearing.
	(3) The CMA Board must publish rules made under this paragraph in such manner as it considers appropriate for the purpose of bringing them to the attention of those likely to be affected by them.
	(4) Before making rules under this paragraph, the CMA Board must consult such persons as it considers appropriate.
	(5) Rules under this paragraph may make different provision for different cases.
	Costs
	17 (1) A group that determines an appeal must make an order requiring the payment to the CMA of the costs incurred by the CMA in connection with the appeal.
	(2) An order under sub-paragraph (1) must require those costs to be paid—
	(a) where the appeal is allowed in full, by the Payment Systems Regulator;
	(b) where the appeal is dismissed in full, by the appellant;
	(c) where the appeal is partially allowed, by one or more parties in such proportions as the CMA considers appropriate in all the circumstances.
	(3) The group that determines an appeal may also make such order as it thinks fit for requiring a party to the appeal to make payments to another party in respect of costs reasonably incurred by that other party in connection with the appeal.
	(4) A person who is required by an order under this paragraph to pay a sum to another person must comply with the order before the end of the period of 28 days beginning with the day after the making of the order.
	(5) Sums required to be paid by an order under this paragraph but not paid within the period mentioned in sub-paragraph (4) are to bear interest at such rate as may be determined in accordance with provision contained in the order.
	(6) Any costs payable by virtue of an order under this paragraph and any interest that has not been paid may be recovered as a civil debt by the person in whose favour the order is made.
	Interpretation
	18 (1) In this Schedule—
	“appeal” means an appeal made in accordance with section (Appeals to Competition and Markets Authority);
	“appeal rules” means rules of procedure under paragraph 16;
	“authorised member of the CMA”—
	(a) in relation to a power exercisable in connection with an appeal in respect of which a group has been constituted by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013, means a member of that group who has been authorised by the chair of the CMA to exercise that power;
	(b) in relation to a power exercisable in connection with an application for permission to bring an appeal, or otherwise in connection with an appeal in respect of which a group has not been so constituted by the chair of the CMA, means—
	(i) any member of the CMA Board who is also a member of the CMA panel, or
	(ii) any member of the CMA panel authorised by the Treasury (whether generally or specifically) to exercise the power in question;
	“CMA” means the Competition and Markets Authority;
	“CMA Board” and “CMA panel” have the same meaning as in Schedule 4 to the Enterprise and Regulatory Reform Act 2013;
	“group” means a group selected in accordance with paragraph 6;
	“statement of truth”, in relation to the production of a statement or provision of information by a person, means a statement that the person believes the facts stated in the statement or information to be true;
	“working day” means any day other than—
	(a) Saturday or Sunday;
	(b) Christmas Day or Good Friday;
	(c) a day which is a bank holiday under the Banking and Financial Dealings Act 1971 in any part of the United Kingdom.
	(2) References in this Schedule to a party to an appeal are references to—
	(a) the appellant, or
	(b) the Payment Systems Regulator.”
	107: Before Schedule 2, insert the following new Schedule—
	ScheduleConduct of FMI administration
	1 The following provisions of this Schedule provide for—
	(a) the general powers and duties of FMI administrators (by application of provisions about administrators), and
	(b) the general process and effects of FMI administration (by application of provisions about administration).
	2 The provisions set out in the Tables apply in relation to FMI administration as in relation to administration, with—
	(a) the modifications set out in paragraph 3,
	(b) any other modification specified in the Tables, and
	(c) any other necessary modification.
	3 The modifications are that—
	(a) a reference to the administrator is a reference to the FMI administrator,
	(b) a reference to administration is a reference to FMI administration,
	(c) a reference to an administration application is a reference to an FMI administration application,
	(d) a reference to an administration order is a reference to an FMI administration order,
	(e) a reference to a company is a reference to the infrastructure company, and
	(f) a reference to the purpose of administration (other than the reference in paragraph 111(1) of Schedule B1) is a reference to the objective in section (Objective of FMI administration).
	4 Powers conferred by this Part of this Act and by the 1986 Act (as applied) are in addition to, and not in restriction of, any existing powers of instituting proceedings against any contributory or debtor of an infrastructure company, or the estate of any contributory or debtor, for the recovery of any call or other sum.
	5 A reference in an enactment or other document to anything done under a provision applied by this Part of this Act includes a reference to the provision as applied.
	TABLE 1 OF APPLIED PROVISIONS SCHEDULE B1 TO THE INSOLVENCY ACT 1986
	
		
			 Provision of Schedule B1 Subject Modification 
			 Para. 40(1)(a) Dismissal of pending winding-up petition  
			 Para. 41 Dismissal of administrative or other receiver  
			 Para. 42 Moratorium on insolvency proceedings Ignore sub-paras. (4) and (5). 
			 Para. 43 Moratorium on other legal process  
			 Para. 44(1)(a) and (5) Interim moratorium  
			 Para. 46 Announcement of appointment Ignore sub-para. (6)(b) and (c). 
			 Paras. 47 and 48 Statement of affairs  
		
	
	
		
			 Para. 49 Administrator’s proposals The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act. Ignore sub-para. (3)(b). 
			 Para. 59 General powers  
			 Para. 60 and Schedule 1 General powers The exercise of powers under Schedule 1 is subject to section (Objective of FMI administration) of this Act. 
			 Para. 61 Directors  
			 Para. 62 Power to call meetings of creditors  
			 Para. 63 Application to court for directions Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings. In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act. 
			 Para. 64 Management powers  
			 Para. 65 Distribution to creditors  
			 Para. 66 Payments  
			 Para. 67 Taking custody of property  
			 Para. 68 Management Ignore sub-paras. (1) and (3).The Bank of England may apply to the court for the variation or revocation of any directions given by the court. 
			 Para. 69 Agency  
			 Para. 70 Floating charges  
			 Para. 71 Fixed charges  
			 Para. 72 Hire-purchase property  
			 Para. 73 Protection for secured and preferential creditors  
			 Para. 74 Challenge to administrator’s conduct For sub-para. (2) there is to be taken to be substituted—“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.” 
			 Para. 75 Misfeasance In addition to applications that may anyway be made under para. 75, an application may be made by the FMI administrator or the Bank of England. 
		
	
	
		
			 Para. 79 Court ending administration on application of administrator For sub-paras. (1) to (3) there are to be taken to be substituted—“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.(2) The persons who may apply to the court under sub-paragraph (1) are—(a) the Bank of England;(b) with the consent of the Bank, the FMI administrator.” 
			 Para. 84 Termination: no more assets for distribution  
			 Para. 85 Discharge of administration order  
			 Para. 86 Notice to Companies Registrar of end of administration  
			 Para. 87 Resignation An FMI administrator may not resign under para. 87 without giving 28 days’ notice of the intention to do so to the Bank of England. 
			 Para. 88 Removal An application for an order removing an FMI administrator from office may be made only by or with the consent of the Bank of England. 
			 Para. 89 Disqualification The notice under sub-para. (2) must be given to the Bank of England. 
			 Paras. 90 and 91 Replacement Para. 91(1) applies as if the only person who could make an application were the Bank of England.Ignore para. 91(2). 
			 Para. 98 Discharge Ignore sub-paras. (2)(b) and (3). 
			 Para. 99 Vacation of office: charges and liabilities In the application of sub-para. (3), payments may be made only—in accordance with directions of the Bank of England, and if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act. 
			 Paras. 100 to 103 Joint administrators An application under para. 103 may be made only by the Bank of England. 
			 Para. 104 Validity  
			 Para. 106 (and section 430 and Schedule 10) Fines  
			 Paras. 107 to 109 Extension of time limits  
			 Para. 110 Amendment of provisions about time An order under para. 110 may amend a provision of the Schedule as it applies by virtue of this Act (whether or not in the same way as it amends the provision as it applies otherwise). 
			 Para. 111 Interpretation  
		
	
	
		
			 Paras. 112 to 116 Scotland  
		
	
	TABLE 2 OF APPLIED PROVISIONS OTHER PROVISIONS OF THE INSOLVENCY ACT 1986
	
		
			 Section Subject Modification or comment 
			 Section 233 Utilities  
			 Section 234 Getting in company’s property  
			 Section 235 Duty to co-operate with office-holder  
			 Section 236 Inquiry into company’s dealings  
			 Section 237 Section 236: enforcement by court  
			 Section 238 Transactions at an undervalue (England and Wales)  
			 Section 239 Preferences (England and Wales)  
			 Section 240 Ss. 238 and 239: relevant time  
			 Section 241 Orders under ss. 238 and 239 In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act. Ignore subsections (2A)(a) and (3) to (3C). 
			 Section 242 Gratuitous alienations (Scotland)  
			 Section 243 Unfair preferences (Scotland) In considering the grant of a decree under subsection (5) the court must have regard to the objective in section (Objective of FMI administration) of this Act. 
			 Section 244 Extortionate credit transactions  
			 Section 245 Avoidance of floating charges  
			 Section 246 Unenforceability of liens  
			 Sections 386 and 387, and Schedule 6 (and Schedule 4 to the Pension Schemes Act 1993) Preferential debts  
			 Section 389 Offence of acting without being qualified Treat references to acting as an insolvency practitioner as references to acting as an FMI administrator. 
		
	
	
		
			 Section 390 Persons not qualified to act Treat references to acting as an insolvency practitioner as references to acting as an FMI administrator. 
			 Section 391 Recognised professional bodies An order under section 391 has effect in relation to any provision applied for the purposes of FMI administration. 
			 Sections 423 to 425 Transactions defrauding creditors In considering granting leave under section 424(1) or making an order in reliance on section 425, the court must have regard to the objective in section (Objective of FMI administration) of this Act. 
			 Sections 430 to 432 and Schedule 10 Offences  
		
	
	6 (1) The Treasury may by order amend this Schedule so as to make further modifications.
	(2) The further modifications that may be made are confined to such modifications of—
	(a) the 1986 Act, or
	(b) other enactments passed or made before this Act that relate to insolvency or make provision by reference to anything that is or may be done under the 1986 Act,
	(3) An order under this paragraph may also make modifications of the provisions of this Schedule.”
	108: Before Schedule 2, insert the following new Schedule—
	ScheduleFinancial market infrastructure transfer schemesApplication of Schedule
	1 This Schedule applies where—
	(a) the court has made an FMI administration order in relation to a company (“the old company”), and
	(b) it is proposed that a transfer within section (Objective of FMI administration)(5) be made to another company (“the new company”).
	Interpretation of Schedule
	2 In this Schedule—
	“FMI transfer scheme” has the meaning given by paragraph 4(1);
	“the new company” and “the old company” are to be read in accordance with paragraph 1;
	“third party”, in relation to an FMI transfer scheme or a modification of such a scheme, means a person other than the old company or the new company.
	FMI administrator to act on behalf of old company
	3 It is for the FMI administrator, while the FMI administration order is in force, to act on behalf of the old company in the doing of anything that it is authorised or required to do by or under this Schedule.
	Making of FMI transfer schemes
	4 (1) The old company may—
	(a) with the consent of the new company, and
	(b) for the purpose of giving effect to the proposed transfer,
	make a scheme under this Schedule for the transfer of property, rights and liabilities from the old company to the new company (an “FMI transfer scheme”).
	(2) Such a scheme may be made only at a time when the FMI administration order is in force in relation to the old company.
	(3) An FMI transfer scheme may set out the property, rights and liabilities to be transferred in one or more of the following ways—
	(a) by specifying or describing them in particular,
	(b) by identifying them generally by reference to, or to a specified part of, the undertaking of the old company, or?
	(c) by specifying the manner in which they are to be determined.
	(4) An FMI transfer scheme is to take effect in accordance with paragraph 7 at the time appointed by the court.
	(5) But the court must not appoint a time for a scheme to take effect unless that scheme has been approved by the Bank of England.
	(6) The Bank of England may modify an FMI transfer scheme before approving it, but only modifications to which both the old company and the new company have consented may be made.
	(7) In deciding whether to approve an FMI transfer scheme, the Bank of England must have regard, in particular, to—Before approving an FMI transfer scheme, the Bank of England must consult the Treasury.The old company and the new company each have a duty to provide the Bank of England with all information and other assistance that the Bank may reasonably require for the purposes of, or in connection with, the exercise of the powers conferred on it by this paragraph.
	(a) the public interest, and
	(b) any effect that the scheme is likely to have on the interests of third parties.
	Provision that may be made by a scheme
	5 (1) An FMI transfer scheme may contain provision—
	(a) for the creation, in favour of the old company or the new company, of an interest or right in or in relation to property transferred in accordance with the scheme;
	(b) for giving effect to a transfer to the new company by the creation, in favour of that company, of an interest or right in or in relation to property retained by the old company;
	(c) for the creation of new rights and liabilities (including rights of indemnity and duties to indemnify) as between the old company and the new company;
	(d) in connection with any provision made under this sub-paragraph, provision making incidental provision as to the interests, rights and liabilities of other persons with respect to the property, rights and liabilities to which the scheme relates.
	(2) The property, rights and liabilities of the old company that may be transferred in accordance with an FMI transfer scheme include—
	(a) property, rights and liabilities that would not otherwise be capable of being transferred or assigned by the old company;
	(b) property acquired, and rights and liabilities arising, in the period after the making of the scheme but before it takes effect;
	(c) rights and liabilities arising after it takes effect in respect of matters occurring before it takes effect;
	(d) property situated anywhere in the United Kingdom or elsewhere;
	(e) rights and liabilities under the law of a part of the United Kingdom or of a place outside the United Kingdom;
	(f) rights and liabilities under an enactment, EU instrument or subordinate legislation.
	(3) The transfers to which effect may be given by an FMI transfer scheme include transfers of interests and rights that are to take effect in accordance with the scheme as if there were—
	(a) no such requirement to obtain a person’s consent or concurrence,
	(b) no such liability in respect of a contravention of any other requirement, and
	(c) no such interference with any interest or right,
	as there would be, in the case of a transaction apart from this Act, by reason of a provision falling within sub-paragraph (4).
	(4) A provision falls within this sub-paragraph to the extent that it has effect (whether under an enactment or agreement or otherwise) in relation to the terms on which the old company is entitled, or subject, to anything to which the transfer relates.?
	(5) Sub-paragraph (6) applies where (apart from that sub-paragraph) a person would be entitled, in consequence of anything done or likely to be done by or under this Act in connection with an FMI transfer scheme—
	(a) to terminate, modify, acquire or claim an interest or right, or
	(b) to treat an interest or right as modified or terminated.
	(6) That entitlement—
	(a) is not enforceable in relation to that interest or right until after the transfer of the interest or right by the scheme, and
	(b) is then enforceable in relation to the interest or right only in so far as the scheme contains provision for the interest or right to be transferred subject to whatever confers that entitlement.
	(7) Sub-paragraphs (3) to (6) have effect where shares in a subsidiary of the old company are transferred—
	(a) as if the reference in sub-paragraph (4) to the terms on which the old company is entitled or subject to anything to which the transfer relates included a reference to the terms on which the subsidiary is entitled or subject to anything immediately before the transfer takes effect, and
	(b) in relation to an interest or right of the subsidiary, as if the references in sub-paragraph (6) to the transfer of the interest or right included a reference to the transfer of the shares.
	(8) Sub-paragraphs (3) and (4) apply to the creation of an interest or right by an FMI transfer scheme as they apply to the transfer of an interest or right.
	Further provision about transfers
	6 (1) An FMI transfer scheme may make incidental, supplemental, consequential and transitional provision in connection with the other provisions of the scheme.
	(2) An FMI transfer scheme may in particular make provision, in relation to a provision of the scheme—Sub-paragraph (2)(c) does not apply to references in an enactment or in subordinate legislation.
	(a) for the new company to be treated as the same person in law as the old company;?
	(b) for agreements made, transactions effected or other things done by or in relation to the old company to be treated, so far as may be necessary for the purposes of or in connection with a transfer in accordance with the scheme, as made, effected or done by or in relation to the new company;
	(c) for references in an agreement, instrument or other document to the old company or to an employee or office holder with the old company to have effect, so far as may be necessary for the purposes of or in connection with a transfer in accordance with the scheme, with such modifications as are specified in the scheme;
	(d) that the effect of any transfer in accordance with the scheme in relation to contracts of employment with the old company is not to terminate any of those contracts but is to be that periods of employment with that company are to count for all purposes as periods of employment with the new company;
	(e) for proceedings commenced by or against the old company to be continued by or against the new company.
	(4) An FMI transfer scheme may make provision for disputes between the old company and the new company as to the effect of the scheme to be referred to such arbitration as may be specified in or determined under the scheme.
	(5) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in England and Wales, or to the management of such land or other property—
	(a) the scheme may provide for that person to be treated as having given another person an acknowledgement in writing of the right of that other person to production of the document and to delivery of copies of it, and
	(b) section 64 of the Law of Property Act 1925 (production and safe custody of documents) is to have effect accordingly, and on the basis that the acknowledgement did not contain an expression of contrary intention.
	(6) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in Scotland or to the management of such land or other property, subsections (1) and (2) of section 16 of the Land Registration (Scotland) Act 1979 (omission of certain clauses in deeds) is to have effect in relation to the transfer—
	(a) as if the transfer had been effected by deed, and
	(b) as if the words “unless specially qualified” were omitted from each of those subsections.
	(7) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in Northern Ireland or to the management of such land or other property—
	(a) the scheme may provide for that person to be treated as having given another person an acknowledgement in writing of the right of that other person to production of the document and to delivery of copies of it, and
	(b) section 9 of the Conveyancing Act 1881 is to have effect accordingly, and on the basis that the acknowledgement does not contain an expression of contrary intention.
	(8) ?In this paragraph references to a transfer in accordance with an FMI transfer scheme include references to the creation in accordance with such a scheme of an interest, right or liability.
	Effect of scheme
	7 (1) In relation to each provision of an FMI transfer scheme for the transfer of property, rights or liabilities, or for the creation of interests, rights or liabilities—
	(a) the property, interests, rights or liabilities become by virtue of this Schedule the property, interests, rights or liabilities of the transferee at the time appointed by the court for the purposes of paragraph 4(4), and
	(b) the provisions of that scheme in relation to that property, or those interests, rights or liabilities, have effect from that time.
	(2) In this paragraph “the transferee” means—
	(a) in relation to property, rights or liabilities transferred by an FMI transfer scheme, the new company;
	(b) in relation to interests, rights or liabilities created by such a scheme, the person in whose favour, or in relation to whom, they are created.
	Subsequent modification of scheme
	8 (1) The Bank of England may by notice to the old company and the new company modify an FMI transfer scheme after it has taken effect, but only modifications to which both the old company and the new company have consented may be made.
	(2) The notice must specify the time at which it is to take effect (the “modification time”).
	(3) Where a notice is issued under this paragraph in relation to an FMI transfer scheme, as from the modification time, the scheme is for all purposes to be treated as having taken effect, at the time appointed for the purposes of paragraph 4(4), with the modifications made by the notice.
	(4) Those modifications may make—
	(a) any provision that could have been included in the scheme when it took effect at the time appointed for the purposes of paragraph 4(4), and?transitional provision in connection with provision falling within paragraph (a).
	(5) In deciding whether to modify an FMI transfer scheme, the Bank of England must have regard, in particular, to—
	(a) the public interest, and
	(b) any effect that the modification is likely to have on the interests of third parties.
	(6) Before modifying an FMI transfer scheme that has taken effect, the Bank of England must consult the Treasury.?The old company and the new company each have a duty to provide the Bank of England with all information and other assistance that the Bank may reasonably require for the purposes of, or in connection with, the exercise of the powers conferred on it by this paragraph.
	Provision relating to foreign property
	9 (1) An FMI transfer scheme may contain provision about—
	(a) the transfer of foreign property, right and liabilities, and
	(b) the creation of foreign property, rights and liabilities.
	(2) For this purpose property, or a right, interest or liability, is “foreign” if an issue relating to it arising in any proceedings would (in accordance with the rules of private international law) be determined under the law of a country or territory outside the United Kingdom.
	Application of Schedule to transfers to subsidiaries
	10 Where a proposed transfer falling within subsection (5) of section (Objective of FMI administration) is a transfer of the kind mentioned in subsection (6)(a) of that section, this Schedule has effect in relation to the transfer as if—
	(a) paragraph 4(1)(a) were omitted, and
	(b) in paragraph 4(6), for the words from “both” onwards there were substituted “the old company has consented may be made”.”
	109: Before Schedule 2, insert the following new Schedule—
	ScheduleFunctions of FCA under competition legislationPart 1Amendments of Financial Services and Markets Act 2000
	1 Part 16A of FSMA 2000 (consumer protection and competition) is amended as follows.
	2 Omit section 234H (power of FCA to make request to Office of Fair Trading).
	3 After section 234H insert—
	“234I Matters in relation to which the FCA has competition functions
	(1) In sections 234J and 234K “financial sector activities” means the provision of financial services.
	(2) The Treasury may by order amend this section.
	234J The FCA’s functions under Part 4 of the Enterprise Act 2002
	(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the FCA and the Competition and Markets Authority (referred to in this Part as “the CMA”).
	(2) Subsection (1) applies to the functions of the CMA under Part 4 of the Enterprise Act 2002 (market investigations), so far as those functions—
	(a) are exercisable by the CMA Board (within the meaning of Schedule 4 to the Enterprise and Regulatory Reform Act 2013), and
	(b) relate to financial sector activities.
	(3) But subsection (1) does not apply to functions under the following sections of the Enterprise Act 2002—
	section 166 (duty to maintain register of undertakings and orders);
	section 171 (duty to publish guidance).
	(4) So far as is necessary for the purposes of, or in connection with, subsections (1) and (2)—
	(a) references in Part 4 of the Enterprise Act 2002 to the CMA (including references in provisions of that Act applied by that Part) are to be read as including references to the FCA, and
	(b) references in that Part to section 5 of that Act are to be read as including references to section 234N of this Act.
	(5) But subsection (4) does not apply—
	(a) in relation to section 166 or 171 of that Act, or
	(b) where the context otherwise requires.
	(6) Section 130A of the Enterprise Act 2002 has effect in relation to the FCA by virtue of subsections (1) and (2) as if—
	(a) in subsection (2)(a) of that section, the reference to the acquisition or supply of goods or services of one or more than one description in the United Kingdom were a reference to financial sector activities involving services provided or received in the United Kingdom, and
	(b) in subsection (2)(b) of that section, the reference to the extent to which steps can and should be taken were a reference to the extent to which steps that might include steps under Part 4 of that Act can and should be taken.
	(7) Before the CMA or the FCA first exercises any of the concurrent functions in relation to any matter, it must consult the other.
	(8) Neither the CMA nor the FCA may exercise any of the concurrent functions in relation to any matter if any of those functions have been exercised in relation to that matter by the other.
	234K The FCA’s functions under the Competition Act 1998
	(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the FCA and the CMA.
	(2) Subsection (1) applies to the functions of the CMA under the provisions of Part 1 of the Competition Act 1998, so far as relating to any of the following that relate to financial sector activities—
	(a) agreements, decisions or concerted practices of the kind mentioned in section 2(1) of that Act,
	(b) conduct of the kind mentioned in section 18(1) of that Act,
	(c) agreements, decisions or concerted practices of the kind mentioned in Article 101(1) of the Treaty on the Functioning of the European Union, and
	(d) conduct which amounts to abuse of the kind mentioned in Article 102 of the Treaty on the Functioning of the European Union.
	(3) But subsection (1) does not apply to functions under the following provisions of that Act—
	section 31D(1) to (6) (duty to publish guidance);
	section 38(1) to (6) (duty to publish guidance about penalties);
	section 40B(1) to (4) (duty to publish statement of policy on penalties);
	section 51 (rules).
	(4) So far as necessary for the purposes of, or in connection with, the provisions of subsections (1) and (2), references to the CMA in Part 1 of the Competition Act 1998 are to be read as including references to the FCA.
	(5) But subsection (4) does not apply—
	(a) in relation to sections 31D(1) to (6), 38(1) to (6), 40B(1) to (4), 51, 52(6) and (8) and 54 of that Act, or
	(b) where the context otherwise requires.
	234L Duty to consider exercise of powers under Competition Act 1998
	(1) Before exercising a power listed in subsection (3), the FCA must consider whether it would be more appropriate to proceed under the Competition Act 1998.
	(2) The FCA must not exercise such a power if it considers that it would be more appropriate to proceed under the Competition Act 1998.
	(3) Those powers are—
	(a) the power under section 55J(2) to vary or cancel a Part 4A permission;
	(b) the power under section 55L to impose a requirement on an authorised person with a Part 4A permission, or to vary a requirement imposed under that section;
	(c) the power to take action under section 88E;
	(d) the power to take action under section 89U;
	(e) the power to give a direction under section 192C;
	(f) the power to impose a requirement under section 196.
	234M Provision of information and assistance to a CMA group
	(1) For the purpose of assisting a CMA group in carrying out a relevant investigation, the FCA must give the CMA group—
	(a) any relevant information which the FCA has in its possession, and
	(b) any other assistance which the CMA group may reasonably require in relation to any matters falling within the scope of the investigation.
	(2) A “relevant investigation” is an investigation carried out on a reference made by the FCA under section 131 of the Enterprise Act 2002 by virtue of section 234J.
	(3) “Relevant information”, in relation to a relevant investigation, is information—
	(a) which relates to matters falling within the scope of the investigation, and
	(b) which—
	(i) is requested by the CMA group for the purpose of the investigation, or
	(ii) in the FCA’s opinion, it would be appropriate to give to the CMA group for that purpose.
	(4) A CMA group, in carrying out a relevant investigation, must take into account any information given to it under this section.
	(5) In this section “CMA group” has the same meaning as in Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
	234N Information relating to FCA’s competition functions
	(1) For the purpose of the functions conferred on it by sections 234J to 234M the FCA is to have the function of keeping under review the market for financial services.
	(2) The function conferred by subsection (1) is to be carried out with a view to (among other things) ensuring that the FCA has sufficient information to take informed decisions and to carry out its other functions effectively.
	234O Exclusion of general duties
	(1) Section 1B (the FCA’s general duties) does not apply in relation to anything done by the FCA in the carrying out of its functions by virtue of sections 234J to 234M.
	(2) But in the carrying out of any functions by virtue of sections 234J to 234M, the FCA may have regard to any of the matters in respect of which a duty is imposed by section 1B if it is a matter to which the CMA is entitled to have regard in the carrying out of those functions.
	234P Supplementary provision
	(1) If any question arises as to whether, by virtue of sections 234J and 234K, any functions fall to be, or are capable of being, carried out by the FCA in relation to any particular case, that question is to be referred to, and determined by, the Treasury.
	(2) No objection is to be taken to anything done under the Competition Act 1998 or Part 4 of the Enterprise Act 2002 by or in relation to the FCA on the ground that it should have been done by or in relation to the CMA.”
	4 In section 3I of FSMA 2000 (power of PRA to require FCA to refrain from specified action), in subsection (3)(a), after “55I” insert “, a power conferred on it by sections 234J to 234N”.
	5 In section 354A of FSMA 2000 (FCA’s duty to co-operate with others), after subsection (2) insert—
	“(2A) Subsection (1) does not apply in relation to the Competition and Markets Authority in a case where the FCA has made a reference under section 131 of the Enterprise Act 2002 as a result of section 234J (but see section 234M).”
	6 (1) Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority) is amended as follows.
	(2) In paragraph 8 (arrangements for discharging functions), after sub-paragraph (4) insert—
	“(5) In respect of the exercise of a function under Part 1 of the Competition Act 1998, the power in sub-paragraph (1) is subject to provision in rules made under section 51 of that Act by virtue of paragraph 1A of Schedule 9 to that Act.”
	(3) In paragraph 23 (fees), after sub-paragraph (2) insert—
	“(2A) The functions referred to in sub-paragraph (1)(a) include functions of the FCA under the Competition Act 1998 or the Enterprise Act 2002 as a result of Part 16A of this Act.”
	Part 2Amendments of other legislationCompany Directors Disqualification Act 1986
	7 In section 9E of the Company Directors Disqualification Act 1986 (interpretation of sections 9A to 9D), in subsection (2), after paragraph (g) insert—
	“(h) the Financial Conduct Authority.”
	Competition Act 1998
	8 In section 54 of the Competition Act 1998 (regulators), in subsection (1), after paragraph (i) insert—
	“(j) the Financial Conduct Authority.”
	Enterprise Act 2002
	9 (1) Section 136 of the Enterprise Act 2002 (investigations and reports on market investigation references) is amended as follows.
	(2) In subsection (7), after paragraph (e) insert—
	“(ea) in relation to the Financial Conduct Authority, section 234J of the Financial Services and Markets Act 2000;”.
	(3) In subsection (8), after “the Office of Rail Regulation,” insert “the Financial Conduct Authority,”.
	Enterprise and Regulatory Reform Act 2013
	10 In section 52(4) of the Enterprise and Regulatory Reform Act 2013 (power to remove concurrent competition functions of sectoral regulators), after paragraph (g) insert—
	“(h) the Financial Conduct Authority.”
	11 In Schedule 4 to the Enterprise and Regulatory Reform Act 2013 (the Competition and Markets Authority), in paragraph 16 (concurrency report), at the end of sub-paragraph (7) insert—
	“(i) the Financial Conduct Authority.””
	110: Before Schedule 2, insert the following new Schedule—
	ScheduleBuilding societiesIntroductory
	1 The Building Societies Act 1986 is amended as follows.
	Exclusion of small business deposits from funding limit
	2 (1) Section 7 (the funding limit) is amended as follows.
	(2) In subsection (3), omit the “and” at the end of paragraph (a) and after that paragraph insert—
	“(aa) subject to subsection (3A), the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society by a small business (see subsection (10));”.
	(3) After subsection (3) insert—
	“(3A) In respect of any day by reference to which the value of X falls to be calculated for the purposes of subsection (1) in relation to the society, the total amount to be disregarded under subsection (3)(aa) may not exceed 10% of the amount that would, in the absence of subsection (3)(aa), be the value of X on that day.”
	(4) After subsection (6) insert—
	“(6ZA) Where a person declares that the person is a small business, the person shall, unless the contrary is shown, be conclusively presumed for the purposes of this section to be a small business.”
	(5) After subsection (9) insert—
	“(10) In this section “small business” means any person (other than an individual acting as a sole trader) carrying on a business which had a turnover in the relevant financial year of less than £1,000,000.
	“(11) For the purposes of subsection (10)—
	(a) the “relevant financial year”, in relation to any day by reference to which the value of X falls to be calculated for the purposes of subsection (1) in relation to a building society, means the last financial year ending before that day;
	(b) “turnover”, in relation to a small business, means the amount derived from the provision of goods and services falling within the business’s ordinary activities, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived;
	(c) in respect of any relevant financial year, the reference to £1,000,000 includes the equivalent amount in any other currency, calculated as at the last day of that year.
	(12) The Treasury may, by order made by statutory instrument, amend the figure for the time being specified in subsections (10) and (11)(c).
	(13) A statutory instrument containing an order under subsection (12) is subject to annulment in pursuance of a resolution of either House of Parliament.”
	3 (1) In article 3 of the Building Societies Act 1986 (Substitution of Specified Amounts and Modification of the Funding Limits Calculation) Order 2007 (S.I. 2007/860), in paragraph 3, for “the modification required by this article” substitute “the modifications required by this article and by section 7(3)(aa)”.
	(2) The amendment by this paragraph of a provision contained in subordinate legislation is without prejudice to any power to amend that provision by subordinate legislation.
	Ability to create floating charges
	4 (1) Omit section 9B (restriction on creation of floating charges).
	(2) In Schedule 15A (application of other companies insolvency legislation to building societies), omit the following paragraphs—
	(a) paragraph 18 (which modifies section 15 of the Insolvency Act 1986);
	(b) paragraph 20 (which modifies section 19 of that Act);
	(c) paragraph 40 (which modifies Article 28 of the Insolvency (Northern Ireland) Order 1989);
	(d) paragraph 42 (which modifies Article 31 of that Order).
	(3) In consequence of the amendment made by sub-paragraph (1)—
	(a) in section 1(1A)(b), for “, 9A and 9B” substitute “and 9A”;
	(b) in the Building Societies Act 1997, omit section 11;
	(c) in section 11(3) of the Banking (Special Provisions) Act 2008, for paragraph (c) substitute—
	“(c) sections 8 and 9A of the Building Societies Act 1986 (restrictions on raising funds and borrowing and on transactions involving derivative instruments etc);”;
	(d) in section 251 of the Banking Act 2009, omit subsection (7);
	(e) in the Financial Services Act 2012, omit section 55.
	Annual business statements
	5 (1) Section 74 (duty of directors to prepare annual business statement) is amended as follows.
	(2) In subsection (4), omit the words from “and other officers” to “them”.
	(3) In subsection (8), omit “or other officer”.
	Summary financial statements
	6 (1) Section 76 (summary financial statement for members and depositors) is amended as follows.
	(2) After subsection (8A) insert—
	“(8AA) The society shall also—
	(a) publish the summary financial statement and (where applicable) the auditor’s report on a web site, and
	(b) ensure that the statement and (where applicable) the report may be accessed on the web site until the publication of the next summary financial statement.”
	(3) After subsection (8D) insert—
	“(8E) If, at any time during the period beginning with the publication of the summary financial statement and ending with the publication of the next summary financial statement, an individual for the first time subscribes for shares in the society, the society shall at that time notify the individual of the information in subsection (8C)(c)(i) to (iii).
	(8F) In a case where subsection (8E) applies, the society is not required under section 115B (right to hard copy version) to send the individual a version of the summary financial statement or (where applicable) the auditor’s report in hard copy form (within the meaning of that section).”
	(4) Omit subsections (9) to (9E).
	(5) In subsection (11), for “subsection (9)” substitute “subsection (8AA) or (8E)”.
	7 In consequence of the amendments made by paragraph 6—
	(a) in section 78(6), for “subsections (8) and (9) of section 76 extend” substitute “subsection (8) of section 76 extends”;
	(b) in paragraphs 7(3) and 8(3) of Schedule 2, omit “the summary financial statement,”.
	Transfers of business: distributions and share rights
	8 (1) Section 100 (regulated terms etc: distributions and share rights) is amended as follows.
	(2) For subsection (8) substitute—
	“(8) The terms of a transfer of a society’s business may confer a right to acquire shares in the successor on a member of the society only if the member—
	(a) held shares in the society throughout the period of two years ending with the qualifying day, or
	(b) on that day, holds deferred shares in the society that are of a class described in the transfer agreement;
	and it is unlawful for any right in relation to shares to be conferred in contravention of this subsection.”
	(3) In subsection (9), for the words from “who” to “and” substitute “who—
	(a) held shares in the society throughout the period of two years ending with the qualifying day, or
	(b) on that day, hold deferred shares in the society that are of a class described in the transfer agreement;
	and”.
	Methods of communicating with members etc
	9 After section 115 insert—
	“115A Deemed agreement to use of web site
	(1) For the purposes of this Act, a person is to be taken to have agreed with a building society to access a document, information or facility on a web site if—
	(a) the person has been asked individually by the society to agree to access documents, information or facilities generally, or documents, information or facilities of the description in question, on a web site, and
	(b) the society has not received a response within the period of 28 days beginning with the date on which the society’s request was received.
	This is subject to subsections (2) to (4).
	(2) A person is not to be taken to have so agreed if the society’s request—
	(a) did not state clearly what the effect of a failure to respond would be, or
	(b) was sent less than 12 months after a previous request made to the person for the purposes of this section in respect of the same or a similar description of document, information or facility.
	(3) A person who is taken to have made an agreement by virtue of subsection (1) may revoke the agreement.
	(4) Subsection (1) does not apply in relation to the following documents—
	(a) a statement required to be sent to members by paragraph 1(1) of Schedule 16 (statements in connection with proposed mergers);
	(b) a merger statement (within the meaning of Part 2 of that Schedule) required to be sent to members by paragraph 3 of that Schedule;
	(c) a transfer statement or transfer summary (within the meaning of Part 1 of Schedule 17) required to be sent to members by paragraph 4(1) or (2) of that Schedule;
	(d) a transfer proposal notification (within the meaning of Part 1A of Schedule 17) required to be sent to members by paragraph 5B(1) of that Schedule.
	115B Right to hard copy version
	(1) Where a person has received a document or information from a building society otherwise than in hard copy form, the person is entitled to require the society to send the person a version of the document or information in hard copy form.
	(2) The society must send the document or information in hard copy form within 21 days of receipt of the request from the person.
	(3) The society may not make a charge for providing the document or information in that form.
	(4) Subsection (1) does not apply if the recipient of the document or information is the FCA or the PRA.
	(5) A building society that fails to comply with this section is to be treated as having contravened rules made under section 137A of the Financial Services and Markets Act 2000.
	(6) For the purposes of this section a person is treated as receiving a document or information from a building society if—
	(a) the society is required by this Act to send the document or information to the person, and
	(b) the requirement to send it is treated as satisfied.
	(7) For the purposes of this section—
	(a) a document or information is sent or supplied in hard copy form if it is sent or supplied in a paper copy or similar form capable of being read, and
	(b) a document or information can be read only if it can be read with the naked eye, or (to the extent that it consists of images) it can be seen with the naked eye.
	115C Other agreed forms of communication
	(1) A document or information that is sent or supplied by a building society otherwise than in hard copy form or electronically or by means of a web site is validly sent or supplied if it is sent or supplied in a form or manner that has been agreed by the intended recipient.
	(2) For the purposes of this section “hard copy form” is to be read in accordance with section 115B(7).”
	10 In the following provisions, omit “, in a manner agreed between him and the society,”—
	section 60(7B)(c),
	section 61(7D)(c),
	section 68(6B)(c),
	section 69(15B)(c),
	section 76(8C)(c).
	11 In section 81(3B)(c), omit “, in a manner agreed for the purpose between him and the society,”.
	12 (1) Schedule 2 is amended as follows.
	(2) In paragraph 20A(1B)(c), omit “, in a manner agreed between him and the society,”.
	(3) In paragraphs 22B(2)(c) and 33(5C)(c), omit “, in a manner agreed between him and the society for that purpose,”.
	(4) In paragraph 24(1B)(b), omit “in a manner agreed between the society and that member,”.
	(5) In paragraph 32(2D)(c), omit “, in a manner agreed between the society and the member,”.
	(6) In paragraph 33A(9)(c), omit “, in a manner agreed for the purpose between him and the society”.
	13 In paragraphs 3(2B)(c) and 9(2B)(c) of Schedule 8A, omit “in a manner agreed between the society and that person,”.
	14 (1) Schedule 11 is amended as follows.
	(2) In paragraph 4(9C)(c), omit “, in a manner agreed between him and the society,”.
	(3) In paragraph 7(7C)(c), for “in a manner agreed between the society and that person, he” substitute “the person”.
	(4) In paragraph 8(3B)(c), omit “, in a manner agreed between him and the society for the purpose,”.
	Financial year
	15 (1) Section 117 (financial year of building societies) is amended as follows.
	(2) For subsection (1) substitute—
	“(1) A building society’s financial years (apart from its final financial year) are determined according to its year-end date in each calendar year.
	For provision about a building society’s final financial year, see subsection (1G).
	(1A) The year-end date of a building society established before 25th August 1894 is—
	(a) the date up to which, as at 1st January 1987, the accounts of the society were annually made up, or
	(b) if the society has, at any time before the day on which subsection (1) comes into force (“the relevant day”), altered its financial year in exercise of a power within subsection (1B), 31st December.
	(1B) The powers referred to in subsection (1A)(b) are—
	(a) the power conferred by section 70(2) of the Building Societies Act 1960,
	(b) the power conferred by section 128(2) of the Building Societies Act 1962, and
	(c) the power conferred by subsection (3) of this section (as it had effect immediately before the relevant day).
	(1C) The year-end date of a building society established on or after 25th August 1894 and before the relevant day is 31st December.
	(1D) The year-end date of a building society established on or after the relevant day is the last day of the month in which the anniversary of its establishment falls.
	(1E) The financial year of a building society established before the relevant day is the period of 12 months ending with the year-end date of the society (but see subsection (1G)).
	(1F) In the case of a building society established on or after the relevant day—
	(a) the initial financial year of the society shall be the period of more than 6 months, but not more than 18 months, beginning with the date of its establishment and ending with its year-end date, and
	(b) its subsequent financial years are successive periods of 12 months beginning immediately after the end of the previous financial year and ending with its year-end date (but see subsection (1G)).
	(1G) The final financial year of a building society is a period of less than 12 months that begins immediately after the end of the previous financial year and ends with the date as at which the society makes up its final accounts.
	(1H) This section has effect subject to section 117A (alteration of financial year).”
	(3) Omit subsections (2) and (3).
	16 After section 117 insert—
	“117A Alteration of financial year
	(1) A building society may by notice given to the FCA specify a new year-end date.
	(2) A notice given under subsection (1) has effect in relation to—
	(a) the financial year in which the notice is given (“the current financial year”), and
	(b) subsequent financial years.
	(3) The notice must state whether the current financial year—
	(a) is to be shortened, so as to come to an end on the first occasion on which the new year-end date falls or fell after the beginning of the current financial year, or
	(b) is to be extended, so as to come to an end on the second occasion on which that date falls or fell after the beginning of the current financial year.
	(4) A notice extending a building society’s financial year is not effective if given less than 5 years after the end of an earlier financial year of the society that was extended under this section.
	(5) A financial year of a building society may not be extended so as to exceed 18 months and a notice under subsection (1) is ineffective if the current financial year as extended in accordance with the notice would exceed that limit.”
	17 In Schedule 20 (transitional and saving provisions), omit paragraph 16 (existing financial years).
	18 The amendments made by paragraphs 15 to 17 have effect in relation to financial years beginning on or after the day on which those amendments come into force.”
	Amendments 106 to 110 agreed.
	Schedule 2: Minor amendments
	Amendment 111
	 Moved by Lord Newby
	111: Schedule 2, page 34, line 11, at end insert—
	“2A (1) Part 25 of FSMA 2000 (injunctions and restitution) is amended as follows.
	(2) In section 380 (injunctions), in subsection (6)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
	(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”.
	“(3) In section 382 (restitution orders), in subsection (9)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
	(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”.
	(4) In section 384 (power of FCA or PRA to require restitution), in subsection (7), omit the “and” at the end of paragraph (a) and after paragraph (b) insert “or
	(c) a requirement which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part.””

Lord Newby: These amendments address a minor and technical point in connection with Sections 380, 382, and 384 of FiSMA, which govern when the regulators may seek an injunction or a restitution order from the court, or require restitution themselves. To exercise these powers, the regulator must demonstrate that the person concerned has contravened a “relevant requirement”. The current definition of “relevant requirement” in FiSMA does not include the new offences created under Part 7 of the Financial Services Act 2012, which deal with misleading statements, misleading impressions, and misleading statements in relation to benchmarks such as LIBOR. This means that regulators are unable to seek an injunction or restitution in relation to these offences. That was not the Government’s intention. These amendments correct this oversight by extending the definition of “relevant requirement” to bring these offences within the scope of the regulators’ powers to seek an injunction or restitution. I commend these amendments to the House.
	Amendment 111 agreed.
	Amendment 112
	 Moved by Lord Newby
	112: Schedule 2, page 34, line 11, at end insert—
	“2B (1) In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), paragraph 20 (penalties) is amended as follows.
	(2) In sub-paragraph (3)(b), after “this Act” insert “or under a provision mentioned in sub-paragraph (4A)”.
	(3) In sub-paragraph (4), after paragraph (c) insert—
	“(ca) its powers under the relevant competition provisions (as applied by Part 16A of this Act),”.
	(4) After sub-paragraph (4) insert—
	“(4A) “The relevant competition provisions” are—
	(a) section 31E of the Competition Act 1998 (enforcement of commitments);
	(b) section 34 of that Act (enforcement of directions);
	(c) section 36 of that Act (penalties);
	(d) section 40A of that Act (penalties: failure to comply with requirements);
	(e) section 174A of the Enterprise Act 2002 (penalties).”
	(5) In sub-paragraph (5)—
	(a) in paragraph (a), for “FSMA 2000” substitute “this Act”,
	(b) in paragraph (b), for “that Act” substitute “this Act”,
	(c) in paragraph (c), omit “of that Act”, and
	(d) after paragraph (c) insert—
	“(ca) offences under Part 1 of the Competition Act 1998,
	(cb) offences under Part 4 of the Enterprise Act 2002,”.”
	Amendment 112 agreed.
	Amendment 113 had been withdrawn from the Marshalled List.
	Schedule 2, as amended, agreed.
	Clause 17: Orders and regulations
	Amendment 113A
	 Moved by Lord Newby
	113A: Clause 17, page 28, line 38, leave out subsections (2) and (3) and insert—
	“(2) A statutory instrument containing an order or regulations under this Act is subject to annulment in pursuance of a resolution of either House of Parliament, unless—
	(a) the instrument contains only provision made under section 21 (commencement), or
	(b) the instrument is required by subsection (4) or any other enactment to be laid in draft before, and approved by a resolution of, each House.
	(3) Subsection (4) applies to a statutory instrument that contains (with or without other provisions)—
	(a) regulations under section 8 (building societies: power to make provision about ring-fencing);
	(b) an order under section (Meaning of “payment system”)(4) (meaning of “payment system”);
	(c) an order under section (Power to make further consequential amendments) (power to make further consequential amendments) that amends or repeals primary legislation;
	(d) an order under paragraph 6 of Schedule (Conduct of FMI administration) (conduct of FMI administration).
	(4) A statutory instrument to which this subsection applies may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
	(5) In subsection (3)(c) “primary legislation” means—
	(a) an Act of Parliament,
	(b) an Act of the Scottish Parliament,
	(c) a Measure or Act of the National Assembly for Wales, or
	(d) Northern Ireland legislation.”

Lord Newby: My Lords, these are technical amendments relating to a number of the new powers introduced to the Bill as a result of the Government’s amendments in your Lordships’ House.
	Amendment 113A amends Clause 17 of the Bill to specify the procedures applying to statutory instruments made under the new powers. It provides that the affirmative resolution procedure will apply to: orders made by the Treasury to exclude certain systems from the definition of “payment systems” for the purposes of the new clauses establishing the new payments regulator; orders to make amendments, which are consequential to the Bill, to other primary legislation, under the power introduced by the second amendment in this group, to which I will return in a minute; and orders made under paragraph 6 of the schedule on the conduct of financial market infrastructure administration, which allows the Treasury to make further modifications to primary legislation to make appropriate provision
	for FMI administration. Orders made under other provisions of the Bill will be subject to the negative resolution procedure, unless they are required to be made using the affirmative procedure, or they are commencement orders.
	Amendment 114 enables the Treasury to make amendments consequential to the Bill—and any statutory instruments made under it—to other primary and secondary legislation. For example, it is likely that this power will be used to bring other legislation in line with the terminology of the new senior managers regime. This power can be used only in certain circumstances and the Treasury can make orders under the power only if it considers it necessary or expedient to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation which is made before the Bill is passed, or which is made in the same Parliamentary Session in which the Bill is passed. I beg to move.

Lord Eatwell: My Lords, first, with respect to Amendment 113A, it is useful to see the use of the affirmative procedure here. However, the noble Lord will recall that the Delegated Powers Committee recommended an amendment which referred to the amendment of clauses that deal with ring-fencing. I asked more than two weeks ago how the Treasury would react to the Delegated Powers Committee in this respect and was told that I would receive a reply. I have not, as yet, received a reply. As we are now reaching the end of the Committee stage, it would be very helpful to know whether the Government are simply ignoring the Delegated Powers Committee, in which case we would require an explanation, or what the Government intend to do about this.
	On Amendment 114, these powers are sometimes referred to as Henry VIII powers. Given this new clause, the good King Henry would regard it as rather excessive and would be taken aback by the power that the Treasury takes,
	“amending, repealing, revoking or applying with modifications any enactment to which this section applies”.
	The enactment applies to,
	“any enactment passed or made before the passing of this Act”,
	so, presumably, since the birth of Henry VIII. The new clause then refers to,
	“any enactment passed or made on or before the last day”.
	That I understand. What scrutiny will be given to these measures? We have been through a Committee stage which has identified a consistent rejection of proposals by the banking commission and particularly of the amendments that have been put forward. I have not heard the Government accept a single amendment put forward on behalf of the banking commission—not one—so there has been a consistent rejection of those. Now we are told that we will have the possibility of,
	“amending, repealing, revoking or applying with modifications”,
	a series of quite controversial measures in which the Government have attempted to water down the proposals of the banking commission. I would like to feel that I could get some reassurance that this power is to be used sparingly and is to be used only if there is some oversight or accountability to Parliament when it is used.

Lord Brennan: My Lords, it is the end of the legislative day in an empty Chamber. This is an extremely important amendment. It is what the noble and learned Lord, Lord Judge, our previous Lord Chief Justice, now on our Cross Benches, would have described, as he did in a speech in the City, as a “Henry VIII Plus” clause because it is so wide-ranging.
	I want to make several points for the Government’s consideration between now and the next stage. The Banking (Special Provisions) Act 2008 and the Public Service Pensions Act 2013 were both Acts that included clauses not as wide as this coming from the Treasury. Researches over the past few hours have not led me to discover any other Act in which there is a clause that provides for any previous Act and also any subsequent Act to be amended to accord with this Act. I may be shown not to know, but I suspect that if there is such a clause, there will be no more than one or two examples. I am concerned that these should come from the Treasury, lest it thinks that it has some special reserve powers for this kind of legislative amendment procedure.
	If I have understood the history of this amendment correctly, it has come in the past couple of weeks. As far as I know, it has not been considered either by the Delegated Powers Committee or by the Constitutional Affairs Committee. This is important because in 2006 the Legislative and Regulatory Reform Bill contained a Henry VIII clause, which was withdrawn by the then Government after a critique by the Constitutional Affairs Committee. I invite the Government’s consideration of this and that of the whole House, when it has had the opportunity to consider that matter.
	Subsection (2)(b) refers to a power to amend any subsequent Act that is passed within this Session of Parliament. That means by the end of next April. In the Government’s commentary on the list of recommendations of the commission and the Government’s response paper of July 2013, item 41, dealing with directors’ duties, is the present subject of review with a supposed consideration of a report called Trust and Transparency. The Government are saying that they wish to deal with changing directors’ duties and that that requires legislation. If this is currently before the Treasury and the relevant Ministers, is this coming in within this Session? In item 60 on payments regulation, there is to be a government report to Parliament by the end of this year, 2013. It requires legislation. Will that require yet another Act? We need clarity. On the whistleblower point mentioned earlier, if there is to be a change in the law, will that require further enactment? The final point is on auditors and supervisors. There are various reviews from the Chancellor and the Government which, it is said, do not involve legislation but might involve action, which in turn might involve potential legislative effect.
	That is three definite items and potentially a fourth that spring out of this topic, and we need clarity. If this is a banking reform Bill, it should be a complete Bill, and the rest of the Session should be geared to accommodate these matters. It is late in the day to ask for a considered response, but no doubt this can be dealt with in writing, and again when we next deal with the Bill.

Lord Turnbull: Because of the piecemeal way in which the Bill has been constructed, we now have a piecemeal presentation of the secondary legislation procedure as it applies to each bit—and I have completely lost track of it. The first thing that needs to be done is to set out, for the whole Bill—the bits that were there originally and the bits that have been added—what the secondary legislation provisions are. Then we can make a judgment on whether they are appropriate: whether the right things have been assigned to the negative procedure and the right things assigned to the positive procedure. However, it is virtually impossible to do this on the basis of this piecemeal presentation.
	Amendment 114 raises enormous issues. The Minister is shaking his head and may try to reassure us, but there are important provisions here that need to go to various committees which we have set up in this House to examine such things.

Lord Newby: My Lords, three issues have been raised. The first is whether we have responded to the Delegated Powers Committee. I explained at some length last week what the Government’s response was. Subsequently, I wrote to the chair of the committee, reiterating what I had said. I am sorry if noble Lords have not seen the letter; I will make sure that it gets to them. I will repeat what I said and what the letter said.
	The Government’s view, bearing in mind that the committee said it was for the House to decide and did not make a recommendation on the procedure to be followed, is that, given the technical nature of these statutory instruments, the best way forward, in the light of the Government’s response to the consultation process that they have just completed, is to invite noble Lords who are interested in the secondary legislation to the Treasury to have an informal discussion on the issues, and to see what they feel might be done, and whether any amendments are required. The Treasury does not have a fixed view on the detailed provision of that secondary legislation, and would welcome the further views of Members of your Lordships’ House.
	Secondly, I find literally incredible the suggestion of the noble Lord, Lord Eatwell, that the Government took no account of the recommendations of the PCBS.

Lord Eatwell: Which amendment proposed by the PCBS have the Government accepted?

Lord Newby: The noble Lord may or may not remember that at the start of today’s discussions the noble Lord, Lord Lawson, pointed out that the size of the Bill had expanded multiple times. I admit that part of this relates to the Government’s amendments on bail-in. However, every other amendment is in order to implement a recommendation of the PCBS. That is what we spent nearly all of last week discussing.

Lord McFall of Alcluith: There is a real communication problem here. I was at a meeting with the noble Lords, Lord Turnbull and Lord Lawson, and with Andrew Tyrie, and they all complained about the expansion of the Bill from 35 pages to 199. If the Minister, incredibly,
	is saying that this is to help the Parliamentary Commission on Banking Standards, perhaps the Government should start communicating with us on this, because we are dismayed by the number of pages in the Bill, not accepting of it.

Lord Newby: My Lords, I am sorry; with the exception of the bail-in provisions, the expansion of the size of the Bill is specifically in order to implement recommendations of the parliamentary commission, such as the senior managers regime, the criminal sanctions and the enhanced electrification power. The reason that the Government have not today accepted everything that the PCBS has recommended is that we have already accepted the majority of the commission’s recommendations and put them in the Bill. It is simply not the case that we have accepted no recommendations of the parliamentary commission—quite the opposite.
	The final issue is specifically about the powers in this amendment. The powers can only be used to make consequential amendments—that is, those which are needed to deal with the provisions passed in the Bill. The example I gave was in relation to the senior persons regime, and I can reassure the noble Lord, Lord Brennan, that there is nothing sinister or unusual in what is being proposed. These powers are commonly taken in Bills which make significant changes to existing law. I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate. The hour is late, but I can assure the House that we are not doing anything here that is in the slightest way unusual.

Lord Eatwell: Will the noble Lord agree that Amendment 114, at least, should be withdrawn until it can be considered by the Constitution Committee and the Delegated Powers and Regulatory Reform Committee? He has plenty of time to bring it back on Report if he then has substantial justification for it, and it would give considerable comfort to the Committee.

Lord Newby: My Lords, I do not think that we need to withdraw the amendment. As I say, it is a standard provision. Interestingly, the specific reason that I gave for requiring it relates to the implementation of a recommendation of the Parliamentary Commission on Banking Standards. However, as I say, this provision is not in any way unusual. Therefore, I do not believe it needs the process that the noble Lord suggests.
	Amendment 113A agreed.
	Clause 17, as amended, agreed.
	Clause 18 agreed.
	Amendment 114
	 Moved by Lord Newby
	114: After Clause 18, insert the following new Clause—
	“Power to make further consequential amendments
	(1) The Treasury may by order make such provision amending, repealing, revoking or applying with modifications any enactment
	to which this section applies as they consider necessary or expedient in consequence of any provision made by or under this Act.
	(2) This section applies to—
	(a) any enactment passed or made before the passing of this Act, and
	(b) any enactment passed or made on or before the last day of the Session in which this Act is passed.
	(3) Amendments and repeals made under this section are additional to those made by or under any other provision of this Act.”
	Amendment 114 agreed.
	Clauses 19 and 20 agreed.
	Clause 21: Commencement and short title
	Amendment 115
	 Moved by Lord Newby
	115: Clause 21, page 29, line 33, at end insert—
	“( ) Section (Building societies) and Schedule (Building societies), apart from paragraph 4 of that Schedule, come into force at the end of the period of 2 months beginning with the day on which this Act is passed.”
	Amendment 115 agreed.
	Amendments 116 and 117 not moved.
	Clause 21, as amended, agreed.
	In the Title
	Amendment 118
	 Moved by Lord Newby
	118:In the Title, line 4, after “insolvency;” insert “to make further provision about payment systems and securities settlement systems;”

Lord Newby: My Lords, this amendment is consequential upon government Amendments 60A to 60YYV introducing a Payments Systems Regulator, and government Amendments 61 to 78, 107 and 108 which introduced a special administration regime for the operators of financial market infrastructure companies. It amends the Long Title of this Bill to reflect the fact that its scope now extends to payment systems and securities settlement systems and therefore ensures that the Long Title matches the content of the Bill. I commend this amendment to your Lordships.
	Amendment 118 agreed.
	Title, as amended, agreed.
	House resumed.
	Bill reported with amendments.

House adjourned at 11.25 pm.